New legislation introducing the concept of ‘employee shareholders’, who give up certain employment rights in return for shares, is due to receive Royal Assent today. The Growth and Infrastructure Bill was finally approved yesterday, but only after the House of Lords forced the Government to incorporate a number of employee safeguards into the new law.

The employee shareholder provisions in the new Act are expected to take effect in autumn 2013. In effect, an employer and employee will be able to agree that, in return for fully paid up shares worth at least £2,000, the employee will give up their statutory rights to unfair dismissal protection (other than automatic unfair dismissal), redundancy pay and to ask for flexible work arrangements or time of for study or training, and will have to give longer notice if they intend to return early from additional maternity, paternity or adoption leave.

Before an employee can agree to having ‘employee shareholder’ status, the employer must provide a written statement with full details about the shares and the rights they carry, including, amongst other things, whether they carry any voting and dividend rights. The employee will then have to take independent legal advice on the terms and effect of such an agreement, which will presumably have to cover not just its effect on employment rights, but also the nature of the rights and obligations attaching to the shares, including what will happen to the shares if the employee leaves. The employer must pay the reasonable costs of obtaining such advice, even if the individual ultimately decides not to accept the offer. By way of an additional safeguard, existing workers will be protected from detrimental treatment if they refuse to change to employee shareholder status. And although an employer is free to insist on employee shareholder status for a new joiner, an individual will not lose any Job Seekers Allowance if the reason for turning down a job is that they don’t want to accept such status.

The tax provisions relating to employee shareholder shares will be addressed in separate legislation. The intention is that the first £2,000 worth of employee shareholder shares will be free from income tax and NICs. In addition there will be a capital gains tax exemption for profits up to £50,000.