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The new section 205A of the Employment Rights Act 1996 on employee shareholders comes into force on 1st September 2013. This section creates a new type of employment status, whereby employees give up a bundle of employment rights.

These include the right:

  • to request to undertake study or training;
  • to request flexible working;
  • not be unfairly dismissed;
  • and a redundancy payment.

Before becoming an employee shareholder, each employee (or applicant to whom a job has been offered) must receive independent legal advice paid for by the employer (up to a "reasonable" level). The employer must pay these legal costs whether or not an employee elects to become an employee shareholder. Employees and applicants will then be given a seven-day cooling-off period in which they can withdraw their agreement. For any acceptance to be valid, the employer must have provided the employee with a statement of particulars that sets out, among other things, the following:

  • The rights the employee shareholder gives up
  • The rights attached to the shares
  • Whether there are any restrictions on the transferability of the shares
  • Whether the employee shares are subject to drag-along rights or tag-along rights

Finally, an employee must not suffer a detriment for refusing to accept an offer to become an employee shareholder. Moreover, the dismissal of an employee for refusing to become an employee shareholder will be regarded as unfair.

Will this type of scheme be widely implemented? It remains to be seen.

Many small employers will not be able to offer employees shares even if they want to and where they can, those shares may not be worth anything anyway. It is also difficult to see what sort of benefit the employee will actually get from such an arrangement. Are they not just making it easier in bad times for the employer to get rid of them? If an employer need not fear an unfair dismissal claim or the need to make a redundancy payment, then in a downturn, from a risk management perspective, the employee shareholders are surely going to be the employees with a target on their backs?

Sarah Rushton

Tel: 0207 539 4147

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information.


Standout firm known for its personal insolvency work for clients including private companies, individuals and governmental institutions. Frequently acts for insolvency practitioners, assisting with the realisation of assets, both in the UK and abroad.

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