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Employee shareholder contracts - a fair share?

View profile for Philip Richardson
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As of 1st September 2013 employers can offer a new type of employment contract which gives employees shares in the organisation. However these shares will come at a price. In exchange the employee will be asked to relinquish certain employment rights.

Shareholder contracts are not restricted to high level employees and are available to all workers who wish to take up the scheme. Any shareholder contract must be created by agreement of both parties meaning that employers cannot force employees to enter in to them against their will.

If the employee and the employer agree to enter into a shareholder contract then it will have to be expressed in a legally binding agreement, which will only be lawful if the employee has sought independent legal advice. The employer will be obliged to pay for this legal advice even where the employee decides not to enter in to the agreement.   

Employees who enter in such contracts will be given shares to a minimum value of £2,000 with no maximum limit set. However, in exchange for this they will give up certain rights, for example the right to bring a claim for unfair dismissal, the right to a statutory redundancy payment and the right to make a flexible working request.

However, it is important to note that employees will not lose all rights when entering in to these agreements. For example, employees will retain the right not to suffer discrimination in the workplace and the right not be dismissed for an automatically unfair reason such as  trade union membership or part time worker status. The shareholder employee will also retain various other rights including the right to holiday and maternity pay.

On the face of it, this scheme will benefit employers as they are likely to see a significant reduction in Employment Tribunal claims and will have more time to focus their efforts on their primary activities.

There are benefits for employees too including tax relief on any gain made by the increase in value of the shares. It is also suggested that it could give the employee an increased sense of belonging to a team, with staff pulling in the same direction. This may be of mutual benefit to employers and employees alike who will be able to reap the financial rewards of the increased productivity.

However the introduction of these contracts is likely to be piecemeal with some commentators suggesting that it could result in a two-tiered workforce. This could lead to less favourable treatment. For example in a redundancy situation, the employer may select shareholder employees who do not have the opportunity to challenge the fairness of their selection due to their restricted employment rights. This lack of uniformity may lead to unfairness, confusion and uncertainty, none of which are particularly desirable in an already uncertain market.

Although the scheme must be entered into voluntarily by both parties, if it proves successful with employers then it may mean that future contracts of employment will be offered under these terms. In a similar fashion to zero hour contracts, the introduction of shareholder contracts may disadvantage job applicants who, in the current economic climate, are forced to do whatever it takes to obtain work.

Although we are not yet able to examine the effectiveness of this scheme, its introduction could represent a significant change for employees. They will move away form having a set of tangible and uniformed rights to a position where they are effectively placing a wager on  the business’ profitability. Following the cuts to legal aid and the introduction of fees in the Employment Tribunal earlier this year, shareholder contracts represent a further threat to the preservation of employee rights.