Employee Shareholders

On 1 September 2013, the government launched its new employment status, known as Employee Shareholder status, under powers contained in the Growth and Infrastructure Act 2013 and the Finance Act 2013.

The “shares for rights” scheme requires participating employees to forfeit a number of statutory employment rights in return for shares valued between a minimum of £2,000 and a maximum of £50,000. These rights include:

• the right to claim unfair dismissal (excluding automatically unfair and discriminatory dismissal);

• the right to a statutory redundancy payment;

• the right to request flexible working;

• the right to request time off to train; and

• participating employees wanting to return early from maternity or adoption leave must give 16 weeks’ notice instead of the usual eight (see Chapter 8).

The shares can be in private limited companies for which there is no external sales market. They are not guaranteed equal voting rights or dividends. There is no guarantee that shares will increase or even hold their value, and the TUC has warned that this means that some individuals may trade employment rights for worthless shares.

The “shares for rights” proposals met with widespread opposition, including from employer organisations such as the Chartered Institute of Personnel and Development (CIPD). The TUC believes the scheme will be used by wealthy executives to avoid taxes. Since employers are allowed to make job offers conditional on new joiners accepting work on an “employee ownership” basis, there is a risk that future employees may be forced to exchange basic employment rights for worthless shares.

The proposal has the attraction for employers of being able to buy out employment rights cheaply at the start of employment relationship, rather than in a more expensive settlement agreement at the end.

Employees have a seven-day “cooling off period” in which to change their mind, and must take independent legal advice.

As the TUC notes: “Employment rights should not be for sale. Employers do not want to buy them, and employees will not want to sell them.”