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In September 2013, a new type of work contract introduced by the UK Government came into effect called an Employee Shareholder Contract. Employees who have this type of contract and employment status with their employer are commonly referred to as employee shareholders.
So, what are employee shareholder contracts and how do they work? Let's look at the advantages and disadvantages of this new approach to employment rights.
Giving up rights for shares
The premise of the employee shareholder contract (ESC) is for workers to sacrifice some of their employment rights in exchange for shares in the company. Certain rights will be given up, and in return a minimum value of £2,000 in shares (on the date they are given to the employee) will be received. Up to the value of £50,000, any growth the shares yield will be exempt from capital gains tax too.
The rights that employees will have to forego to enjoy these benefits include the right to flexible working schedules, time off for training or studying, and statutory redundancy payment.
Learn more: The A-Z of employee rights: a guide for employers
New employees have no choice?
Some opportunities for employees to claim unfair dismissal will also be given up under the contract; however, many rights will remain under this category.
The Guardian have reported that employees will be able to claim against being dismissed for certain reasons such as:
- Trade union membership
- Asserting a statutory right (including discriminatory reasons)
- Whistleblowing
- Certain health and safety issues
From 2013, employers have been able to offer an ESC to new workers without offering an alternative. When offering an ESC, you must put in writing the exact conditions of the contract, including the rights to be given up.
For an ESC to be enforceable, the employer must give the employee 7 days to consider the agreement and must ensure that they take legal advice on the contents and pay a proportion of the legal costs of the employee. You must also detail the conditions of the shares the worker will be receiving, how and when they are to redeem them, etc.
The advantages of employee shareholder contracts
The advantages for an employer would perhaps be that the workforce is easier to manage. If this is the case, then it may encourage businesses to take on more staff, and the business can be more flexible in how they choose to engage with employees.
From an employee’s point of view, the value of shares may be worth more to them than the rights they are sacrificing. What’s more, with shares in the company, they may feel more connected to the business and more inclined to participate in its successes.
Learn more: How to develop leadership skills in employees
The disadvantages
On the other hand, if a company does decide to introduce ESCs into the workplace, there is a danger that new employees will feel separate from existing employees as they will have different employment rights. Perhaps when making company-wide decisions regarding overtime, time off and redundancies, these contracts will be disadvantaging for those that work under them.
There are also the shares themselves, which could be a point of contention. Share values can decrease as easy as they can increase, and in the event of dismissal or disagreement, the handling and cashing in of shares may not go so smoothly.
Read more from the myhrtoolkit blog
Negotiating terms and conditions of employment with employees
Written by Camille Brouard
Camille is a Senior Marketing Executive for myhrtoolkit who writes on topics including HR technology, workplace culture, leave management, diversity, and mental health at work.
