The proposals for a new ‘employee shareholder’ status originally received a frosty reception from the House of Lords, who twice rejected the draft provisions in the Growth and Infrastructure Bill.
The amended proposals were finally accepted by the House of Lords, and the Bill was granted Royal Assent on 25 April 2013. The provisions on employee-shareholders will come into force on 1 September 2013.
The new status will allow companies to issue an employee with shares in the company, in return for the individual forgoing certain employment rights. Existing or prospective employees will be under no obligation to accept an offer of employee-shareholder status.
Shares to the value of at least £2,000 in the employer company (or a parent company) can be issued, with any gains on shares worth up to £50,000 being exempt from capital gains tax. The employee-shareholder will lose the right to bring a claim for ‘ordinary’ unfair dismissal and will not be entitled to a statutory redundancy payment. They will not be entitled to request flexible working arrangements or to request time off for study or training. Such employees would be required to give 16 weeks’ notice if they want to return early from a period of maternity or other family leave (rather than the usual eight weeks’ notice).
In finally agreeing to the revised provisions in the Bill, the House of Lords secured the following concessions from the Government:
- An individual who refuses an offer of employment as an employee-shareholder will no longer lose his or her entitlement to Jobseekers Allowance.
- Existing employees who refuse to convert to employee-shareholders will be protected from dismissal or other detriment.
- An offer must be accompanied by a statement explaining the employment rights that would be sacrificed and the rights attached to the shares.
- The individual will be required to seek independent advice on the employer’s offer, the reasonable costs of which must be borne by the employer (in a similar way to agreeing a valid compromise agreement).
- Individuals who agree to such an offer must be allowed a seven-day ‘cooling off’ period from the day the independent advice is received.
It remains to be seen whether or not this new status will be introduced by many employers, although the response of businesses to the original proposals suggests that the uptake will be very low.