New employee shareholder contracts – what employers need to know

Employers can now offer their staff a new kind of employment contract. The basic idea behind the new concept of employee shareholder, which came into force in September, is that individuals receive at least £2,000 worth of shares in their employer in return for giving up some employment rights.

If a company is considering entering into an employee shareholder contract they should consider the tax and employment law issues, as well as the choices relating to shares and options.

The main point to note is that in exchange for shares, employers will ask their staff to give up some important employment rights. Firstly, they will ask them to 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 be asked to give up their right to statutory redundancy pay and their right to request flexible working hours, including in relation to study or training.

Employers will also be required to ask staff on this new contract to give longer notice than other employees if they wish to return early from family-related leave, such as maternity leave.

The new type of contract will not permit employers to discriminate against employees on the grounds such as race, gender, sexuality or disability.

Employers cannot force employees 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 it is also a requirement that the employer issues a written statement setting out what shares they are offering and the employment rights they are asking the employee to forfeit.

Once this new contract status has been set up, employers can look forward to tax relief against the acquisition of any shares by their employees.

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