Controversial rules allowing employees to waive certain employment rights in exchange for shares in their employer’s company came into force in the UK at the beginning of this month.

The new rules, set out in the UK’s employment legislation, provide for a new type of employment status known as an ‘employee shareholder’. Essentially an employee shareholder agrees to give up certain employment rights, including the right not to be unfairly dismissed and the right to statutory redundancy pay, in exchange for shares in the employer’s company (or its parent) worth at least £2,000. The employee shareholder also gets the benefit of capital gains tax relief on the first £50,000 worth of shares. There has to be a specific agreement in place between the employer and employee shareholder, and the employee needs to have taken independent legal advice on the subject for that agreement to be valid. Existing employees cannot be compelled to change their status to that of an employee shareholder, but there is technically nothing to prevent an employer insisting that all future recruits have employee shareholder status.

Despite having been voted down twice in the House of Lords, the UK Government maintains that the rules will be a useful tool for start-up businesses and will be beneficial for employees who want to take a share in a company with big potential. Critics argue that uptake of this new employee shareholder status will be minimal, as workers will not want to sacrifice key employment rights. It will be interesting to see how popular the employee shareholder status turns out to be over the next few months. Early indications suggest that there has been very little interest so far, with the Government having received reportedly only a handful of enquiries about the new employee shareholder rules.
If you are interested in the new employee shareholder status, the Government has published comprehensive guidance on what to consider, from the perspective of both employer and employee, which can be found at https://www.gov.uk/employee-shareholders.

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