From April 2013 the new tier of 'employee shareholder' employment status will be introduced pursuant to the Growth and Infrastructure Bill 2012/13. Employee shareholders will receive shares with a value of at least £2,000 in return for giving up specified employment rights.

The shares will be exempt from capital gains tax, up to a maximum threshold of £50,000.

In exchange for the shares, the employee shareholders will give up the right to:

  • claim unfair dismissal (except in health and safety cases, automatically unfair dismissal cases, or cases where the dismissal is discriminatory under the Equality Act 2010);
  • a statutory redundancy payment;
  • make a statutory flexible working request; and
  • make a statutory request in relation to study or training.

New joiners who are employee shareholders will remain protected against the so-called automatically unfair dismissals where no qualifying service is required (e.g. whistle-blowing) and from discrimination.

The Bill has attracted much criticism from business, accountancy firms as being too "rushed" and not sufficiently thought through. In particular, the appropriate tax treatment on the sale of shares is unclear. It is understood that the provision of shares will not be liable to capital gains tax but will attract income tax.

It will be interesting to see how many businesses are willing to give up a share of their equity in exchange for gaining a specified class of employees who have more limited employment rights. The aim is to make employment law more flexible for small and medium enterprises and, in particular, new start-ups.