From 1st September 2013 employers will be able to offer employee shareholder contracts to new recruits.

In return for granting shares to a value of between £2,000 and £50,000, employees who accept this type of contract give up a number of employment rights including:

  • Unfair dismissal.
  • Redundancy payment.
  • Right to request flexible working.
  • Time off for training.

In addition, women wanting to return early from maternity leave will have to give 16 weeks notice rather than 8 weeks.

Employee shareholders will retain rights to bring other claims eg for discrimination or whistle-blowing.

Before entering into such an agreement, the prospective employee must take independent legal advice at the expense of the employer. They must also be given a list of the rights they are giving up together with details of the rights attached to the shares.

The employee will not suffer capital gains tax on a disposal of these shares and there is also income tax relief up to £2,000.

It will be unlawful to treat an existing employee adversely for refusing to accept an employee shareholder contract. However new recruits can be offered the contracts on a take it or leave it basis.

It will be interesting to see how much take-up there is of these new provisions. Whilst offering some attractions to employers, it is likely that there will be quite a lot of administration and expense involved in setting up such arrangements, including creation of share schemes or amendment of existing schemes.

However if implemented such arrangements may give employers greater flexibility in managing their workforce whilst encouraging employees to be stakeholders in the business.

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