Employee Shares

The Government recently confirmed its intention to introduce a new type of employment contract in which it would be lawful for employees to waive certain statutory employment protections.

In exchange for reduced employment rights, employees would be offered shares in their employer with a value between £2,000 and £50,000. Although the acquisition of the shares would be subject to income tax (and national insurance, if relevant) the eventual sale of those shares, by the employee, would be exempt from capital gains tax.

Details released to date suggest that the legislation is principally intended for small and medium sized companies, but companies of any size will be able to use this opportunity. Rights which may be forfeited include unfair dismissal, flexible working, maternity leave and redundancy payments.

There will be flexibility in the legislation which permits the opportunity to be offered to employees recruited after the legislation is enacted or both future employees and current employees.

Some beneficial share option schemes, such as Enterprise Management Incentive, have restrictions as to their use if employees already hold shares in their employer. Current proposals imply that these existing share option schemes will not be adversely affected by the new legislation.

It has been suggested that legislation will be enacted from April 2013 and the Government will consult with Industry as to the practical implications of the proposals before then. Obvious practical considerations which need to be ironed out include the impact of numerous employees having an influence on the strategic direction of a private company and the alternatives should an employee leave the company whilst holding shares in their employer.