Employee Shareholder Status Under An Employee Share Scheme

The employee share ownership scheme is a government scheme that has had several critics but essentially it lets employers offer share incentives to employees (a minimum of £2000) in return for the surrender of certain employment rights.

Let us try to understand it more by looking at the benefits of an employee stock ownership program:

• Employee stock ownership improves performance and incentivises increased productivity and entrepreneurialism.
• A focus on improved performance reduces conflict and increases collectivism and entrepreneurship.
• As an employee shareholder, it can lead to improved responsibility and accountability.
• Reduction in employee turnover.
• Potential tax advantages.

There are obvious benefits to adopting the scheme, yet it has also received some criticisms focusing on the mandatory resignation of workers’ legal rights, which are surrendered in return for shares. Examples of rights surrendered in exchange for employee shares include:

• Statutory redundancy pay.
• Right to claim unfair dismissal.
• Right to request flexible work.
• Right to request time off for study/training leave.

However, under share schemes for employees, shareholders can claim unfair dismissal based on the following:

• Discrimination
• Whistleblowing

In an employee share scheme, the shareholder-employee remains entitled to the same health and safety standards as non-shareholder employees, as well as receiving the equivalent entitlement to minimum holiday pay, sick pay, and maternity pay.

For employers considering the scheme it is worth noting that before an individual agrees to be a shareholder-employee, they must first receive advice from an independent advisor on the terms and effects of the employee shareholder agreement. When this takes place, it is the employer who is required to meet reasonable costs for that advice, whether the individual accepts the position or not.

Looking at the number of complexities inherent in the scheme, it is advised that employers draw up clear contracts to clarify employee shareholder status. The contract should include details of exactly what rights an employee is giving up and it must provide them with significant information relating to the shares being offered. In addition, contracts should include buy-back clauses that will come into effect if the employee were to resign from the company or be dismissed.