Parliament has passed legislation establishing a new type of employment status known as ‘employee-owner’ or ‘employee-shareholder’ (which?). The Government anticipates implementing this on 1 September 2013.

This enables employees to give up particular rights and protections including rights relating to unfair dismissal, redundancy payments and other statutory rights in exchange for receipt of shares with a value of at least £2,000. The first £2,000 of shares will be exempt from income tax and any gains will not be subject to capital gains tax if the employee disposes of these shares at a later date. (There is a cap of £50,000 on the value of the shares at the time of acquisition).

Due to the various legal requirements, it is recommended that employers obtain legal advice before offering employeeshareholder status to employees. It is a requirement for employers providing employee-shareholder agreements to have a written statement which explains the employment rights that would be surrendered and sets out complete details regarding the shares and the rights attached to them.

There are several things for employers to remember. Employees who agree to the new status will still be protected from dismissal which is automatically deemed unfair, for example dismissal on the grounds of whistle-blowing or discrimination.

To ensure that an employee-shareholder agreement is valid, it is necessary for the employee to obtain legal advice. It is the employer’s responsibility to pay the reasonable cost of obtaining this advice. It should be noted that if the employee eventually decides against signing the agreement there is a seven day ‘cooling off’ period’ during which they can decide to pull out. Current employees will be protected from detrimental treatment if they object to entering into an employeeshareholder agreement.