Employees can now trade their rights at work for shares as the Chancellor of the Exchequer’s controversial “employee shareholder” scheme takes effect this week.
In return for at least £2,000 worth of shares in their employer company, employees will give up their rights not be unfairly dismissed in certain circumstances, to statutory redundancy payment, to request time off for study or training, to make a flexible working request, and to give only eight weeks’ notice to return early from maternity, adoption or parental leave.
However, they will still be protected from discrimination-related dismissal, health and safety-related dismissal and automatically unfair dismissal. If returning from parental leave, they can make a flexible working request within 14 days of their return.
Writing in this week’s NLJ, employment law solicitor Roderick Ramage describes the scheme as “harebrained”.
He warns that the value of shareholdings in unquoted companies is often “illusory rather than real”; that valuing the shares is “an uncertain exercise”; that dismissed employees might claim employment rights on the grounds the valuation was incorrect and the shares are worth less than £2,000; and that employees will lose both statutory redundancy and their shares in the event of insolvency.
From a company owner’s perspective, minority shareholdings dilute the controlling shareholders’ rights and create regulatory complications, he said.
The scheme, introduced under the Growth and Infrastructure Act 2013, took effect on 1 September. However, according to a report in the Daily Telegraph “only a handful” of companies has shown any interest.
Daniel Barnett, employment barrister at Outer Temple Chambers, said: “Takeup is expected to be highest with startup companies and with highly paid senior executives, where they can take advantage of the first £50,000 capital gains on those shares being tax free.
“There are protections built in when the employer offers a job on this basis: the employee shareholder must be given full written details of the rights s/he is giving up and the type of shares being offered, s/he has a right to independent advice (to be paid for by the employer) and a seven-day cooling off period.”
“Problems will arise if an employee-shareholder leaves the company and wants to sell back the shares. If the company is not listed on the stock market, valuing the shares is elusive and the employee may find themselves stuck with whatever the employer offers.”
