Date:

Employee shareholder status given the go-ahead by the House of Lords

The concept of ‘employee shareholder’ has sparked much controversy but it appears that it has finally been given the green light as the House of Lords last night voted to accept clause 27 of the Growth and Infrastructure Bill.

The headline catching initiative championed by David Cameron and George Osborne is designed to encourage employees to become shareholders in their employer in return for foregoing certain normal employee protection rights (such as unfair dismissal).   

The government have had to make a number of concessions in order to gain the crucial House of Lords vote.  The concessions include:

  • The individual must have received independent legal advice prior to entering into an employee shareholder contract.  Without the legal advice the employee will be an ordinary employee.  Employers will be liable to pay the legal costs. 
  • There will be a seven day ‘cooling off’ period during which time the employee can change their mind on their acceptance of the employee shareholder contract.
  • Current employees must not suffer a detriment for their refusal to change to an employee shareholder contract. 
  • Jobseekers will not be deprived of their unemployment benefits if they refuse an employee shareholder contract.
  • Employers must provide detailed information to the individual with details of the shares and the rights they are giving up.

 

Comment

Despite an overwhelming negative response the government has been determined to introduce the employee shareholder status.  Royal Assent is expected today and it is likely that the legislation will be implemented in the autumn of this year.

A number of questions remain unanswered as to how exactly the new status will work.  For example, if someone changes their mind within the cooling off period, does an employer have to offer the individual an ordinary employment contract?  What would be classed as reasonable legal costs for advising on an employee shareholder contract?  Can an employer re-coup the costs if the employee changes their mind for a reason unrelated to the status?

One consistent theme to this legislation is that the government seem determined not to over regulate how the new concept will work, leaving it open to employers and employees to negotiate.  However, it would seem likely that this lack of guidance will lead to much satellite litigation.

For now we will have to wait and see.  

 

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.