Employee shareholder contracts: what do they mean for your business?

By: Kathryn Fielder

Date: 21 October 2013

Employee shareholder contracts: what do they mean for your business?/employment contract documentEmployee shareholder contracts were introduced on 1 September to enable employers to offer shares to new or current employees in exchange for giving up certain employment rights. The government has predicted that 50,000-80,000 people will enter into these contracts each year, although there has been little uptake so far.

These contracts have been introduced with a dual purpose: to help businesses by reducing the employment rights of their employees, while giving employees a financial interest in their employers' business.

Employees entering into such agreements will do so in exchange for their rights to bring claims for unfair dismissal and statutory redundancy payments, together with certain family friendly rights and time off for study or training. So what do these contracts mean for your business?

For start-ups and businesses that are looking to grow, these contracts offer an attractive proposition. By limiting employees' rights, such as unfair dismissal and statutory redundancy, organisations are less likely to be faced with legal action. For those that choose to offer employees shares, this new type of contract can provide additional protection against the most common types of litigation, while rewarding loyalty to the business.

Employees are also protected, because prior to entering into such a scheme they must take advice from a legal professional. There is also a seven-day cooling-off period to ensure that employees have every opportunity to thoroughly consider what they are giving up in return for the benefits of shares in the company and tax advantages.

It is anticipated that this scheme is likely to be attractive to employees who trust their employers; are not inclined to litigate; or are not intending to stay with their employers for more than two years (which is now the minimum qualifying period for an unfair dismissal claim and redundancy).

Either way, the new scheme offers an opportunity for employees to invest in the business and this should result in increased employee loyalty, something that can only be encouraged.

Blog supplied by Kathryn Fielder, senior associate employment at B P Collins LLP.

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