The House of Lords have finally approved the Government's plans for employee shareholders. Accordingly, new employee shareholder contracts will be created, under which employees will give up some of their employment rights in exchange for shares in their employer.

Under the proposals the employer will have to give the employee shares worth at least £2,000. Moreover in the recent budget the Chancellor announced that the first £50,000 worth of gains made on the shares would be exempt from Capital Gains Tax. In addition, the first £2,000 worth of shares will be free from income tax.

However, in exchange for becoming an employee shareholder, an employee will be required to surrender certain employment rights including:-

  • the right not to be unfairly dismissed (except in health and safety cases, automatically unfair cases, or cases where the dismissal is discriminatory under the Equality Act 2010); and
  • the right to a statutory redundancy payment.

The following protections will apply where an employee shareholder contract is offered:-

  1. an employee cannot accept the offer within 7 days of it being made;
  2. the employee must be provided with a written statement of the rights they are giving up;
  3. a written statement setting out the details of the shares being offered must be provided;
  4. a jobseeker who refuses a job on an employee shareholder basis will not automatically forfeit their unemployment benefits;
  5. an existing employee will be protected from detriment if they refuse to switch to the employee shareholder status.

The Department for Business, Innovation and Skills intends to implement this new type of employment status (it will become the third status type joining employee and worker status) in Autumn 2013. It had previously been announced that 1 September 2013 would be the implementation date but we await confirmation of whether this remains the case.