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Employee Shareholder scheme approved by Parliament

30th April 2013

After some Parliamentary pong pong between the House of Commons and House of Lords the Government has secured the passage of legislation providing for the new "employee shareholder" status.

The basic point behind this legislation is that it enables employers to offer recruits or existing employees the right to own at least a minimum of £2,000 worth of shares in the business in return for the individual effectively signing away protection from unfair dismissal rights, the right to request flexible working arrangements and right to request training.

During the debates in Parliament the Government has repeatedly stressed that the proposal is really aimed at small medium size businesses and in particular new businesses. They argue that the point is to encourage employees to have a greater involvement and role in the business. The Government hopes that this will encourage development and growth in small, medium businesses and new businesses, with a greater stake in the future and development of the business being held by employee shareholder staff.

The arguments from the Government have not been based on any actual evidence. It is also striking that in the consultation process that was linked to this legislation that there was remarkable little enthusiasm for this proposal. nevertheless the Government has pressed on with the proposal, albeit now subject to some concessions following criticism of the proposals in the House of Lords.

The Government amendments now stipulate that a company wanting to use the scheme must give an individual:

- a cooling off period of 7 days during which employee shareholder status will not be binding,

- a written statement providing details about the shares (such as their value, whether or not they have voting rights attached to them, and any other  restrictions or other conditions attached to the shares.

The individual will also be required to get independent legal advice on the terms and effect of the proposed arrangement (for which the employer will have to pay "reasonable costs" before the arrangement will be binding.

We are of the view that the proposal is unlikely to appeal to many small medium or new businesses- as the minimum requirement of £2,000 in paid up shares is likely to be too large a proportion of the shares in the company for a company to give to an employee (as a shareholder they will presumably have rights over the decisions made by the company as a whole).

It is also questionable as to how many new business owners would want employees to have shares in their company, thus presumably reducing the value of their shareholding and the reduction on any value that they will receive if they were to sell the company in the future. It also appears to us that the most likely group to take advantage of this scheme will be senior executives in large companies that have notice periods or levels of pay that make claims for unfair dismissal irrelevant (so they are not actually signing away rights that have real meaning to them), and instead can get shares under this scheme in a tax efficient manner (just adding to their "benefits" from their employment).

If you need advice or assistance on any issue raised in this article please do not hesitate to contact us at Hallett Employment Law Services Ltd.              

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