What individuals need to know about new employee-shareholder contracts

From 1 September, employers will be able to offer their staff a new kind of employment contract.

The employee-shareholder contract, as it is known, will give employees shares in their employer’s business – but what will this actually mean for individuals who sign up to these contracts?

One of the most controversial aspects of the new contracts is that in exchange for shares, employees must give up some important employment rights. Firstly, they will surrender the right to claim unfair dismissal, except where the dismissal is on grounds that amount to unlawful discrimination – for example, because of race, sexual orientation or disability – or if the dismissal is automatically unfair, such as being related to certain health and safety rights, family-related leave or trade union membership.

Employee-shareholders will also give up their right to statutory redundancy pay and their right to request flexible working hours, including in relation to study or training. They will also be required to give longer notice than other employees if they wish to return early from family-related leave, such as maternity leave.

They will, however, retain the right not to be discriminated against on the grounds such as race, gender, sexuality or disability, as well as the right to minimum periods under the working time provisions, notice rights, statutory sick pay and maternity pay and the national minimum wage.

Employees cannot be forced to transfer to employee-shareholder status, so the contract must be agreed by both parties to be valid. The shares must be worth at least £2,000 when the employer issues them and the employee must receive a written statement setting out what shares they are obtaining and the employment rights they are forfeiting in exchange.

Employee-shareholders will be exempt from capital gains tax on profits made from selling shares acquired when they entered into the new contract, provided the shares sold were not worth more than £50,000. There will also be exemptions from income tax and national insurance contributions on the first £2,000 worth of shares.

If you are offered an employee-shareholder contract by your employer or are considering signing up for one, then it is sensible to seek legal advice first to ensure you understand your options and the implications of forfeiting some of your employment rights. At Palmers, our employment team are experienced in advising private individuals on a wide range of employment law matters.

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