Employee owners

31 January 2013 | David Widdowson

The Government has reported on the outcome of the consultation relating to proposals to create a new status of employee owner.

The proposal

As we reported in our October article ‘Shares in exchange for employment rights’, the government was intending to consult on its proposal to introduce legislation to create a new category of employee – the employee owner. In return for giving up rights to claim unfair dismissal and redundancy pay, the employee would be allocated shares to the value of between £2,000 and £50,000 which would be free of Capital Gains Tax.

Although 92% of the responses to the consultation expressed negative or mixed views about this proposal, the government has announced that it intends to proceed and it seems likely this will be effective from April 2013.

There have been some changes to the original proposals:

  • the new employment status will now be called ’employee shareholder’
  • shares should be fully paid up and issued free of charge to the employee owner
  • the minimum value will remain at £2,000 but the Secretary of State will have power to raise this sum
  • there will be no upper limit but the relief offered from CGT will only apply to the first £50,000
  • shares may be issued in the employee’s parent company although not a subsidiary
  • non-UK registered companies will qualify

As before, existing employees will be free to accept the offer of shares or reject them and remain on their existing terms. Some extra teeth are proposed in respect of new employees:

  • positions may be offered only on an employee shareholder basis; and
  • if a person in receipt of Jobseekers Allowance refuses an offer of a job on an employee shareholder basis ‘without good reason’ it may result in the loss of that benefit for up to three years.

The government does not intend to provide any further regulations as to the terms on which shares may be issued requiring only that they have a “real” value of at least £2,000. Matters of voting and dividend rights will be left to the individual employer. Circumstances where shares may be forfeited will be left to contractual arrangements between the employer and employee shareholder. Guidance will be published on issues of employment status and the tax consequences of employee ownership.

Commentary

The government’s response to the consultation confirms its determination to implement this new proposal despite its negative reception. The relevant legislation is currently at Clause 25 of the Growth and Infrastructure Bill which has just gone through its Second Reading in the House of Lords.

We now await the promised guidance to go along with the legislation.

Resources

Shares in exchange for employment rights

Original BIS consultation paper

Government consultation response

Growth and Infrastructure Bill

For further information or to discuss the issues raised, please contact Guy Abbiss Emma Clark or David Widdowson on +44 (0)20 3051 5711.

Disclaimer

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

The author

David Widdowson
Senior Consultant
Employment Law
Mediation
Business Coaching
D: +44 (0) 207 036 8388
T: +44 (0) 203 051 5711
F: +44 (0) 203 051 5712

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