What employment rights are forfeited by an individual who agrees to employee-shareholder status?

An employee shareholder is an individual who has agreed to give up certain employment rights in return for shares in the employer's company, in accordance with the requirements of s.205A of the Employment Rights Act 1996. There is a distinction between individuals with employee-shareholder status and employees who hold shares in the company, for example under an employee share scheme, while retaining their employee status.

Employee shareholders do not have the right to:

  • claim unfair dismissal (except where the dismissal is automatically unfair or discriminatory);
  • a statutory redundancy payment;
  • make a statutory request for flexible working (unless they make the request within 14 days of returning from a period of parental leave); or
  • make a statutory request in relation to study or training.

Employee shareholders must give 16 weeks' notice to return early from maternity leave or adoption leave; whereas employees are required to give only eight weeks' notice.

Employee shareholders do have the right to make a claim under the Equality Act 2010. Therefore, if an employer rejects, or refuses to consider, a flexible working request from a female employee shareholder, they may have a claim for indirect discrimination on the basis that more women than men need flexible working arrangements due to childcare responsibilities. Further, an employee shareholder who is dismissed for a discriminatory reason can bring a claim under the Equality Act 2010, as well as a claim for unfair dismissal.

The tax advantages linked to shares awarded under employee-shareholder agreements have been abolished for arrangements entered into on or after 1 December 2016. Further, in the Autumn Statement 2016, the Chancellor of the Exchequer announced that the status itself will be closed to new arrangements at the next legislative opportunity, in response to evidence that it is primarily being used for tax-planning purposes by high-earning individuals. On 4 January 2018, the Department for Business, Energy and Industrial Strategy confirmed to XpertHR that this is still the Government's intention.