Employee Shareholder Status and Commencement Dates – Update

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The Problem

In short – growth (or rather the lack of it)! The current Government wants to stimulate growth and thinks one way to do this is to create a new employment status of an ‘employee shareholder’.  It is also wanting to liberate us from ‘red tape’ and is therefore proposing a range of measures intended to do just this.

The Principles

It’s fair to say that the draft legislation introducing this new employee status has not been liked by the House of Lords. On two separate occasions the Lords rejected the proposed employee shareholder status as set out in the Growth and Infrastructure Bill.

Under this scheme employers will be able grant employees at least £2,000 in shares in exchange for the employee giving up a variety of employment rights (including ‘ordinary’ unfair dismissal and the right to a statutory redundancy payment).

The Government has been determined to press ahead with the scheme but in order to resolve the ‘ding dong’ with the Lords it has published a list of concessions. These include:

  • a provision that the employee cannot accept the offer within seven days of it being made (the unknown practicalities of this aside, nothing currently would stop the employer from refusing to offer a job to a prospective employee who doesn’t want to take up employee shareholder status);
  • a written statement setting out the rights that the employee is giving up;
  • a written statement setting out the details of the shares being offered (including whether they are voting or non-voting shares, whether they carry a dividend, and whether they carry a right to a share in the company’s assets if it is wound-up, whether pre-emption rights are excluded, and details of drag-along and tag-along rights);
  • a jobseeker who refuses a job on an employee shareholder basis will not automatically forfeit their Job Seeker’s Allowance;
  • an agreement that someone shall become an employee shareholder is invalid unless, prior to entering into the contract, the individual has received advice from a relevant independent advisor (i.e. a lawyer, CAB, law centre, union etc). The employer will have to pay the reasonable costs of that advice – whether or not the employee then accepts the role; and
  • if the employee does not receive independent advice before agreeing to become an employee shareholder, then s/he will be an ordinary employee.

With regard to the other developments in the employment law sphere, BIS has announced the commencement dates for some of the other changes introduced by the Enterprise and Regulatory Reform Act 2013.

On 25 June 2013 the following will come into force:

  • the new tribunal procedural rules (the final version has not been published yet);
  • changes to whistle blowing provisions (introducing a public interest requirement, removing the need for disclosures to be made in good faith and imposing vicarious liability on employers for detriments by employees on other workers); and
  • removing the 2-year qualifying period for unfair dismissal where the main reason for dismissal is the employee’s political opinions or affiliations.

We await commencement dates (and in many cases more detail) for:-

  • confidential termination negotiations (expected summer 2013);
  • new caps on the compensatory award in unfair dismissal claims (expected summer 2013);
  • fees for bringing tribunal claims (expected summer 2013);
  • changes to TUPE (expected October 2013);
  • Acas early conciliation (expected 2014); and
  • financial penalties in tribunal proceedings for employers (expected 2014).

The Practice

In respect of many of the intended changes the practical impact is not yet fully known, not least because we have yet to see the ‘small print’.  In the meantime, the new employee status is set to be implemented in September 2013.  Our view of this scheme remains as detailed in our last update.  Our concerns and observations appear to be shared by many other practitioners and interested parties.  Indeed, we leave you with the (amusing) thoughts of Lord Debden on this scheme:

I cannot imagine any circumstances whatsoever in which this would be of any use to any business that I have ever come across in my entire life“.

For more information, help or advice please contact Tim Davies on 0191 211 7927.