The new employee shareholder status was introduced today, the 1st September 2013. The proposal to introduce employee shareholder status faced substantial opposition from the House of Lords and a number of concessions were made before the House of Lords accepted the proposals.
The basic idea behind the new concept of employee shareholder is that individuals will receive between £2,000 and £50,000 worth of shares in the employer company, which will be exempt from Capital Gains Tax. Furthermore, the first £2,000 worth of shares will be exempt from Income Tax and national insurance contributions (subject to anti-avoidance provisions).
In exchange, the employee shareholder agrees to give up certain statutory employment rights, including the right to bring an ordinary unfair dismissal claim and the right to a statutory redundancy payment.
The employee shareholder must receive independent legal advice on the terms and effect of the proposed employee shareholder agreement and the agreement can’t be entered into (and won’t become binding) until seven days after the individual receives the advice. The employer must meet the reasonable costs of this advice being provided to the individual and this applies whether or not the individual proceeds to enter into the proposed agreement after receiving that advice.
Furthermore, existing employees cannot be forced to take up employee shareholder status and are protected from detriment for refusing to become employee shareholders.
One of the reasons behind introducing the concept of employee shareholders was to enable businesses to create a flexible workforce, presumably by reducing the cost of dismissing employees. However, it is not clear that it will actually reduce the cost arising from dismissals. Although, employee owners will give up their statutory redundancy and unfair dismissal rights, they will still be able to bring claims in relation to discrimination and whistleblowing, both of which can give rise to substantial awards.
It will be interesting to see the take up of this scheme, particularly as the responses to the Government’s consultation on the proposals did not reveal much support from either employer or employee representative bodies.
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