Employee Shareholders

From 1^st September new rules are in force to permit the establishment of a novel category of employee: “the Employee Shareholder”.

 

I read today in one on-line piece that these new contracts will bring new talent flooding into the UK, as entrepreneurial employees the world over rush to take advantage of a scheme that robs them of their essential employment rights in exchange for some pretty unclear financial incentives.

 

It would be fair to say that we at Morrish are pretty sceptical about the new rules.

 

At heart this is a measure further to reduce worker protection.  We have been blogging for many months about the unprecedented rate and extent of changes that have been wrought to employment rights in the last year or two.  Readers will not be surprised to hear that we remain concerned that, once again, the rights of workers are being sacrificed at the altar of “business flexibility”.

 

But leaving aside questions about the relative bargaining power of the parties to the contract of service, we have real doubts about whether – for most employers and employees – there is going to be any practical call for these new Employee Shareholder contracts.

 

Employee Shareholder status is conditional on the employer providing a written statement setting out the employee’s rights and obligations – and on the employee receiving independent legal advice about those rights and obligations.

 

There are a host of issues to be considered.  How will the shares be valued?  What type of shares will they be (some companies have lots of different classes of shares, with different voting rights associated with each)?  What provisions exist for sale of the shares?  What if the company goes bust?  Will the employee have to enter into a Shareholder Agreement?  What will govern the relationship between majority shareholders and minority classes?  What provisions exist in the Articles of the company in relation to shareholder rights?

 

It seems to us that any advisor worth his salt is going to take more than a few hours to look at all the relevant documents and to ensure that the potential Employee Shareholder is given proper advice about their future rights.  That is going to cost a not insignificant sum of money.  Will the employer pay?

 

And what is the employer’s interest?  Principally, he benefits by avoiding claims for unfair dismissal and redundancy. 

 

But since last year, the qualifying time limit for unfair dismissal has been extended to 2 years – and by coincidence the redundancy payment regime only applies to employees with more than 2 years’ service.

 

Are many employers really going to want to part with shares, to grant possible rights to future employees, to pay potentially significant legal costs both to their own lawyers and the lawyer advising the employee – all for protection from a pair of rights that won’t apply to the employee until 24 months have passed, in any event?

 

We’ll see.  Given that none or almost none of the respondents to the Government’s consultation on the topic thought that Employee Shareholder status was a good idea – and the negative responses were both from employee and employer groups – we tend to think that this may end up being a flash in the pan.  And a good thing too.

 

Paul Scholey - Senior Partner

 

For further information on Employment Rights, please visit our website or call 0033 3344 9600 and ask to speak with our Employment Rights team.