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Employee shareholders

On 1st September 2013 s.31 Growth and Infrastructure Act 2013 creates a new s.205A Employment Rights Act 1996 and introduces “Employee Shareholder” status.

What are employee shareholders?

The key elements of this new type of employee are:

  • That both the company and the individual have to agreed to the terms of the status.
  • The company issues or allots to the individual fully paid up shares of the company which at day they are allotted are valued at no less than £2,000 (GBP).
  • The company must give the individual a written statement of particulars of the status of the employee and the right which attached to the shares. This statement must:
    • State that they are an employee shareholder and do not have the rights as listed below.
    • Specify the new notice periods for maternity, paternity and adoption leave.
    • Give the details about the shares and state whether they have voting rights attached to the shares, whether they carry dividends, whether they grant rights distribute assets on winding up, what class of share etc.

In return, the employee will agree that:

  • they do not have the right to bring a claim should they be unfairly dismissed;
  • they do not have the right to a statutory redundancy payment;
  • their maternity, paternity and adoption leave notice provisions will be amended to provide for a longer notification period;
  • they cannot make a request for flexible working.

What makes an employee shareholder agreement valid?

The Employee Shareholder agreement will not have effect unless:

  • The individual took independent legal advice as to its effects before signing;
  • 7 days have passed since the date which the individual received the advice; and
  • The company paid the reasonable legal costs of the individual in obtaining the advice.

What protection does an employee shareholder have?

An employer must not:

  • Subject the employee to detrimental act on the grounds that the employee refuses to accept an offer to become an employee shareholder; and
  • If an employee is dismissed for not accepting an offer to become an employee shareholder then they will be treated as being automatically unfairly dismissed and there will be no length of service requirement.

This new status of employee will create fresh considerations for businesses when considering restructuring or reorganisation and it will be important for companies to properly define the new status within their organisation and the level of voting rights they want the shares to carry.

For business law advice call 0845 225 2635

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