After some legislative ping-pong played out between the Commons and the Lords and much scepticism from employers, employee shareholder status arrives in September.
Despite initial doubt around this third type of UK employment status, it may after all have some merit, allowing entrepreneurs and small companies to create a more flexible, more committed workforce with less fear of litigation and a greater alignment of interests.
Fashion businesses appear to be well placed to take advantage of this new status, which should not be overlooked too hastily.
What is it all about?
- Employer and employee enter into a contract under which the employee is allotted fully paid up shares in the employer or its parent company.
- The shares must have a minimum value of £2,000, but there is no maximum value.
- Any gain the employee makes on disposal of the shares is exempt from capital gains tax, provided the shares had a value not exceeding £50,000 on allotment.
- Shares up to a value of £2,000 may be allotted to the employee free from income tax and national insurance contributions, although any greater value attracts an income tax charge, which is a disadvantage.
- In return, the employee gives up some important employee rights – see below.
What will the employee lose?
Employee shareholders will lose the rights to:
- a statutory redundancy payment on being made redundant
- claim unfair dismissal, except where the dismissal is automatically unfair or for a discriminatory reason
- request flexible working, except shortly after returning from parental leave
- request time off for training.
In addition, more notice of the proposed date of return from maternity leave (16 rather than 8 weeks) will be required from the returning employee shareholder.
As they are giving up important employment rights, employees must receive independent legal advice before becoming an employee shareholder.
Can the employer force employees to sign up to shareholder contracts?
No, but it can decide to only offer shareholder status to new hires.
Will the new status be sufficient to incentivise fashion companies to give up shares in the company?
- Potentially yes – fashion companies could finally be freed from not only much of the current costs of carrying out dismissals, but also the time that goes into designing and managing a fair termination process.
- However, be aware that employers will still need to have half an eye to following a fair procedure where there is the potential for a discrimination claim.
How attractive will employee shareholder status be for employees?
Potentially, very. Start up fashion companies could be the very type of business that will succeed in attracting high calibre staff by holding out the potential for significant capital gain, notwithstanding the loss of key employment rights.
Employee shareholder status is an innovative concept. Fashion businesses, and those who work in them, are by their very nature innovative and ambitious. Mutuality of interest may make employee shareholder status the new “must have” for fashion firms and their employees next season.
Hannah Cunningham is an Employment Associate and a member of the Fashion Law Group at Fox Williams LLP