On 8 October 2012, the UK Government announced its plans for a new kind of employment contract called an “employee-owner”.  Those employed under this sort of contract would exchange some of their UK employment rights in return for shares in their employing company. Any growth in the value of the shares would be exempt from capital gains tax. The Government consulted on the details at the end of last year and the proposals have been the subject of much government debate.

Under the new provisions an individual will become an “employee owner” (now changed to “employee shareholder”) where the company issues or allots to the individual shares in the company which have a value, on the day of issue or allotment, of no less than £2,000 and no more than £50,000 and the individual gives up some employment rights.  The employee would give up the right to claim unfair dismissal (except where the dismissal is automatically unfair); the right to a statutory redundancy payment; the right to request flexible working (except in circumstances where they have returned from statutory unpaid parental leave in which case they may make such a request within 4 weeks of their return); and the right to request time off for training.

The initial response to the consultation was not favourable with only 3 out of 184 respondents indicating that they welcomed this new employee shareholder status.  The proposals have since been caught between the two houses of government, (the House of Lords and the House of Commons) with the House of Lords initially rejecting  the “rights for shares” and employee shareholder status proposal on two occasions.  However, yesterday (24 April 2013), the House of Lords voted to accept the proposal when a compromise was reached that meant workers would have to be given independent legal advice, paid for by the employer, before agreeing to sign up to the agreement.

The government also introduced various other concessions since the initial proposals, namely:-

  • there will be a seven day ‘cooling off’ period, during which any acceptance of employee shareholder status will not be binding;
  • employers must provide a written statement with full details about the shares and the rights they carry;
  • any jobseeker who refuses an offer with employee shareholder status will not forfeit their social security benefits;
  • the first £2,000 of shares will not attract income tax; and
  • existing workers will be protected from detriment if they refuse to switch to an employee-shareholder contract.

So  “rights for shares” and employee shareholder status will indeed now become law and Royal Assent is expected imminently.  It is proposed that this new employment status will be implemented in autumn 2013.  We look forward to seeing how this new status is taken up by employers.