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14th May 2013

Shares For Employment Rights

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At the Conservative Party Conference on 8 October 2012, the Chancellor of the Exchequer, George Osborne, announced a new Employee Shareholder Scheme.

Under the terms of the Scheme, employees would give up some of their employments rights in exchange for being given, for free, shares in their company employer.

After much debate through the House of Commons and the House of Lords, it has finally been announced that the new “Shares for Rights” Scheme will be introduced on 1 September 2013.

In essence, an employer and employee will be able to agree that, in return for the individual becoming an “employee shareholder” and giving up various employment rights, the employing company will give to the employee between £2,000 to £50,000 worth of shares, for free.

The first £2,000 of shares will not attract income tax or NIC liabilities, and any gains made on the first £50,000 of shares will be exempt from Capital Gains Tax.

So what exactly does the employee give up in return for receiving these free shares in their employing company?

The employee shareholder will have the same rights as any other employee, but with some exceptions:

• The individual will have no right to claim “ordinary” unfair dismissal – with some exceptions, for example, in Health & Safety cases, automatic unfair dismissal (such as “whistleblowing” claims), and cases where the dismissal is discriminatory under the Equality Act 2010.

• They will have no right to a statutory redundancy payment.

• They will have no right to request time off for study or training.

• They will have no right to make a flexible working request (with a few narrow exceptions).

• The individual must give 16 weeks’ notice if they want to return early from statutory maternity, adoption or additional paternity leave. Employees will however have various levels of protection, which include the following:

• Protection from dismissal or other detriment for existing employees who refuse to become employee shareholders.

• An offer of employee shareholder status must include a statement explaining the employments rights that would be sacrificed and the rights attaching to the shares.

• The individual must receive advice about the offer from an independent solicitor, barrister, legal executive, union official or advice centre – in just the same way as they must do now for a Compromise Agreement to be valid. However, unlike a Compromise Agreement, the employer must meet the reasonable legal costs incurred in receiving this advice, even if the offer is not actually accepted.

• Individuals agreeing to the offer will be entitled to a 7 day “cooling off” period from the day legal advice is received. To what extent this new status of employee shareholder will be taken up is yet to be seen. That said, the reaction from businesses has been, to put it mildly, luke warm. It may, however, interest some start up companies who do not wish to have the additional potential exposure to unfair dismissal claims. That said, employees who start their employment on or after 6 April 2012 need to have two years’ continuous service in any event before the receive “ordinary” unfair dismissal protection, which provides quite a substantial “breathing space” in any event.

We shall see. For more information, please contact Nick Hall on 01604 463375 or click here to email Nick.