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Everything you need to know about Employee Shareholders

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Employee shareholder is an employment status. An employee shareholder is someone who works under an employee shareholder employment contract. Your company must give, or as an employee shareholder you must receive, shares in the employer’s company or employer’s parent company. These shares must have a minimum value of £2,000 on receipt. There is no set upper value.

Who can apply for/ accept an employee shareholder job?

Anyone can apply for or accept an employee shareholder job. You do not have to apply for or accept an employee shareholder job if you do not want to. If you are a Jobseeker’s Allowance claimant and do not want to apply for an employee shareholder job, you do not have to.

If you are already an existing employee working in a company, your employer may ask you to change your employment contract to that of employee shareholder. You must still go through the same process outlined in this guidance. You don’t have to change your contract of employment if you don’t wish to. If you are currently an employee and your employer dismisses you or subjects you to any detriment because you did not accept the offer of an employee shareholder contract, you may present a complaint to an employment tribunal.

What are the six conditions that must be met to become an employee shareholder?

There are 6 conditions that must be met for someone to become an employee shareholder – whether as a new hire or an existing employee. The employer and the individual share responsibility to meet these conditions.

  • The individual and the company must both agree that the individual will be an employee shareholder.
  • The employer must give the individual fully paid-up shares in the employer’s company or employer’s parent company, and they must be worth at least £2,000.
  • The individual must not pay for the shares in any way.
  • The employer must give the individual a written statement of the particulars of the status of employee shareholder.
  • The individual must get advice from a relevant independent adviser on the terms and effect of the written statement. The company is required to pay for that advice whether the individual accepts the job or not.
  • The individual cannot accept or agree to an employee shareholder job until 7 days have passed following receipt of the advice. The 7 days begin on the day after the advice has been received.
  • If the individual or the company do not undertake or keep to all 6 of these conditions, the individual will not be an employee shareholder.

What are the employment rights of an employee shareholder?

An employee shareholder has the following rights:

  • statutory sick pay
  • statutory maternity, paternity and adoption leave and pay
  • unfair dismissal rights where they are classed as automatically unfair reasons, where dismissal is based on discriminatory grounds and in relation to health and safety
  • minimum notice periods if their employment will be ending (eg if an employer is dismissing them)
  • time off for emergencies
  • collective redundancy consultation
  • TUPE
  • national minimum wage
  • not to have unlawful deductions from wages
  • paid annual leave
  • rest breaks
  • the right not to be treated less favourably for working part time or fixed term
  • not to be discriminated against

Both the individual and the employer must understand which rights an employee shareholder will not have, as this must be communicated in the written statement. These are:

  • unfair dismissal rights (apart from the automatically unfair reasons, where dismissal is based on discriminatory grounds and in relation to health and safety).
  • rights to statutory redundancy pay.
  • the statutory right to request flexible working except in the 2-week period after a return from parental leave.
  • certain statutory rights to request time off to train.

In addition, an employee shareholder will have to give 16 weeks’ notice to their employer if they intend to return early from maternity, extra paternity, or adoption leave. An employer can choose to offer contractual rights that are more generous than those provided for in statute.

There is a compulsory sequence of actions that must take place before an individual can accept or refuse an offer of employment as an employee shareholder. If these actions are not undertaken, or if they are not undertaken in the right order, the individual will not be an employee shareholder.

  1. When a company offers an individual or an existing employee an employee shareholder job, they must provide a written statement of the particulars of the status of employee shareholder.
  2. Once the individual or existing employee has received the offer of the employee shareholder job and the written statement, that individual must get independent advice on the terms and effect of that specific job offer.
  3. The individual must take 7 calendar days to consider the independent advice received and whether they wish to accept or refuse the employee shareholder job. The 7 days begin on the day after the independent advice is received.
  4. The contract will only have legal effect as an employee shareholder contract after the 7 days have passed.

What to include in the written statement?

The written statement must include:

  • the employment rights that an employee shareholder does not have.
  • the employee shareholder must give a minimum of 16 weeks’ notice of an early return from maternity, extra paternity, or adoption leave.
  • whether there are any voting rights attached to any of the shares being given.
  • whether the shares carry any rights to dividends.
  • whether the shares would, if the company were wound up, confer any rights to participate in the distribution of any surplus assets.
  • if the company has more than 1 class of shares, and any voting or dividend rights, explain how those rights differ from the equivalent rights that attach to the shares in the largest class; if the shares offered are already part of the largest class of shares, then the explanation should refer to the next largest class.
  • whether the shares are redeemable and if they are, at whose option.
  • whether there are any restrictions on the transferability of the shares and what those restrictions are.
  • whether any pre-emption rights are excluded in the case of the shares given to the employee shareholder.
  • are the shares subject to drag-along or tag-along rights, and if they are, explain what that means.

Drag-along and tag-along rules relate to minority shareholders, and whether they would have to sell their shares if:

  • majority shareholders have agreed to sell.
  • minority shareholders need the majority shareholders to get the same offer to sell their shares if the majority are selling.

The company could, if it wished, include more information than set out above, or include any other information that may be relevant or useful for the individual to know.

Relevant Independent Advice

The potential employee shareholder has a responsibility and a right to find a relevant independent advisor.

Independent advice can be given by:

  • a qualified lawyer
  • an officer, official, employee or member of a trade union whom the trade union has certified as competent to give that advice
  • a person who works in an advice centre, as long as the advice centre has certified the person as competent to give that advice
  • any person authorised to give legal advice by the Secretary of State – this is currently a Fellow of the Institute of Executives who is employed by a legal firm

An employee shareholder employment contract will not take legal effect if an individual does not get independent advice. It is in the interest of the individual to understand the employee shareholder contract and its implications before they accept a job. If, after explaining this to the individual, that individual still refuses to get independent advice, that individual should not be offered the employee shareholder contract.

An employer must not use in-house lawyers or lawyers who have acted for the company and must not insist the potential employee shareholder consults a specific lawyer or firm. The advice must be independent.

The company must pay the reasonable costs of obtaining the independent advice. The employer and individual should clarify what that would be at the outset. The company must pay for the advice for both new hires and existing employees, and in every case regardless of whether the job is accepted or not.

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Reina D'costa

Dual qualified, experienced, practical and proactive solicitor. Founder of Bizlaw UK, a new model legal service consultancy.