Employee-shareholder contract introduced

Implementation date: 1 September 2013

The Growth and Infrastructure Act 2013 (PDF format, 231K) (on the UK legislation website) introduces the employee-shareholder contract, a new type of employment contract, where employee shareholders (previously known as employee owners) will be given shares in the business in exchange for foregoing certain employment rights. The order that brings the provision into force can also be viewed on the UK legislation website.

Key details

Employee shareholders will be given between £2,000 and £50,000 of shares in the business, which will be exempt from capital gains tax, in exchange for foregoing certain employment rights, which are set out below. (The upper limit on shares of £50,000 applies in relation to the capital gains tax exemption but does not apply in relation to determining employee-shareholder status.) Shares should be fully paid up and free to employee shareholders.

Employee shareholders will not have the "ordinary" unfair dismissal protection after two years' continuous service. They will be unable to make statutory requests to work flexibly or in relation to study or training, and will not be protected against dismissal for making either of these statutory requests, except in relation to a flexible working request on return from parental leave. Further, employee shareholders will not be eligible for statutory redundancy pay, and will have to give 16 weeks' notice to return early from additional maternity, paternity or adoption leave, as compared with eight weeks (for maternity and adoption leave) or six weeks (for paternity leave) for employees.

However, employee shareholders will be protected from being dismissed for nearly all of the automatically unfair reasons, for example making a protected disclosure. There will also be:

  • day-one unfair dismissal rights and protection against detrimental treatment for refusing to agree to an employee-shareholder contract;
  • a requirement for employers to provide a written statement of the particulars of employee-shareholder status and the rights attached to the shares, which will have to set out the employee shareholder's loss of specified employment rights;
  • a "cooling off" period of seven days, during which an individual's acceptance of an offer to become an employee shareholder will have no effect.

Further, an employee-shareholder contract will be valid only if the employee receives independent legal advice prior to entering into it. The employer will be liable to pay the reasonable costs of that advice.

More from XpertHR
Employment law manual > Contracts of employment > Types of contract > Future developments provides further information on employee-shareholder contracts.