What is it and where does it come from?
The Chancellor, George Osborne, announced proposals for a new
type of employee ownership arrangement. The suggestion was that
employees would give up some of their statutory employment rights
(see below for more details), in particular the right to claim
unfair dismissal and the right to a statutory redundancy payment,
in exchange for shares in their employing company as a way to
provide more flexibility to employers to secure the right
staff.
Employers can offer employees £2,000 worth of shares (free of
tax and NI) and there is a capital gains tax exemption on the
disposal of the shares provided they were worth no more than
£50,000.
In practice it seems that the reason people have been entering
into Employee Shareholder arrangements has not been to free
employers up from the risk of employment claims, but to enable
employees who were already going to receive shares to benefit from
the tax breaks.
So, how do you become an Employee Shareholder?
You must be an existing employee or agree to be recruited as an
Employee Shareholder.
Companies must provide their employee with a written statement
of the particulars of the status of an Employee Shareholder and,
specifically, the rights the employee will not have as an Employee
Shareholder. The individual is then required to seek
independent legal advice on the terms.
The individual should agree to become an Employee Shareholder
having received the particulars and obtained legal advice.
The company does not have to provide a separate agreement to record
the individual's agreement to the change, but clearly this would be
a sensible approach.
The company issues or allots to the individual fully paid up
shares in the company, which have a value, on the day of issue or
allotment, of no less than £2,000. Anything less than a value of
£2,000 and the individual will not be an Employee Shareholder. The
valuation of the shares is one of the key issues in the rules
around Employee Shareholders.
The only consideration given by the individual is entering into
the agreement to become an Employee Shareholder. If the individual
is found to have given any other consideration (ie, money) they
will not be an Employee Shareholder.
What does the employer get in return?
Unfair Dismissal
Certain actions of employers may be regarded as unfair dismissal
of an employee and certain actions may be regarded
asautomaticunfair dismissal. For an employee to bring an unfair
dismissal claim against an employer, the employee has to have at
least 2 years service to qualify. However, forautomaticunfair
dismissal, the employee enjoys the protection from day one of her
employment.Automaticunfair dismissal occurs, for example, where a
dismissal is connected with pregnancy or maternity leave, or for a
health and safety reason, or in connection with working hours, rest
periods and rest breaks.
The main right which is waived when an employee becomes an
Employee Shareholder under the Employee Shareholder Scheme, is the
right not to be unfairly dismissed. However, the employee does not
waive his right for anautomaticunfair dismissal claim under the
Employee Shareholder Scheme. Other rights which are
waived include the right to request time off to study, or for
training and the right to request flexible working.
Statutory Redundancy Payment
Employee Shareholders also wave their right to a statutory
redundancy payment (at the date of writing this blog up to £13,920
depending on age and service).
Not all rights are waived
Clearly not all employment law rights are waived by employees
who are entering the Employee Shareholder Scheme. As mentioned
above, there is no waiver of theautomaticallyunfair dismissal but
also there is no waiver of the protections against dismissals in
breach of the Equality Act 2010 (ie., for discrimination) and
dismissals for suspension in connection with health and safety
grounds.
Importantly, employees have the right not to be subjected to a
detriment on the grounds that they have refused to accept an offer
to become an Employee Shareholder and will be regarded
asautomaticallyunfairly dismissal (where no 2 year service
required) if the reason for their dismissal is that they refused to
accept an offer by the employer to become an Employee
Shareholder.
An employee who cares
Apart from less onerous employment rights set out above, the
employer gets an employee who has a vested interest in the
business. As an Employee Shareholder, the individual will
truly care about how the business performs as they stand to benefit
from a profitable business. This undoubtedly will boost
productivity, meaning your business will flourish with a team of
dedicated and motivated individuals.
For more information on an Employee Shareholder Scheme, please
contact our Head of Employee Inventive Scheme, Penina Shepherd on
08458 678978 or email: penina.
shepherd@acumenbusinesslaw.co.uk