Employee Shareholder Agreements

On 1st September 2013 the controversial and much talked about ‘Employee Shareholder Contracts’ come into force in the UK requiring employees, in return for equity in the business, to give up rights to redundancy payments, flexible working and making claims for unfair dismissal for those employers wishing to offer this and for those employees opting for such a contract.

Employee Shareholder Contracts allow employers to give equity to employees in return for a reduction in certain employment rights. These differ from employees who hold shares; they remain unaffected by these new style contracts unless the employee elects the change and the Company is in agreement. In these new contracts, the Employee Shareholder is given equity to the value of between £2,000 and £50,000. This will be exempt from capital gains tax when the employee sells the shares and makes a profit up to the £50,000 cap. Any profits over the £50,000 cap do have capital gains tax applied.

Loss of employment rights

Under these new contracts, employees do not lose all of their employment rights covered under the Employment Rights Act 1996, but they do lose the following:

  • Claims for unfair dismissal
  • Statutory redundancy pay
  • Statutory requests for flexible working
  • Statutory requests to study or training

Employers should note however that any claim for unfair dismissal, where the dismissal is automatically unfair or discriminatory (such as race, sex or disability) is exempt from the new legislation. Requests for flexible working that are made within 14 days of an employee returning from parental leave must also still be considered. Failure to consider could result in the employee shareholder (if female) making a claim under the Equality Act 2010 for indirect discrimination or, in cases of unfair dismissal claims under the Act, for unfair dismissal of a protective characteristic (race, sex, etc.).