Employee Shareholder Status: the latest developments

by Lucy Duane on March 24, 2013

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20 March 2013 was an eventful day for the proposed new employee shareholder employment status. The 2013 Budget included further details about the tax treatment of shares that will be acquired by employee shareholders, meanwhile, the House of Lords voted to amend the Growth and Infrastructure Bill (the “Bill”) by deleting Clause 27: peers voted 232 to 178 to delete the clause that would introduce the new employee shareholder status. Employee shareholder status may still come into force on 1 September 2013, however, as the Bill is to return to the House of Commons on 16 April 2013 and the government may reintroduce Clause 27 in any event.

What is employee shareholder status?

Employee shareholder status is a proposed third form of employment status, alongside “employee” and “worker”. Both existing and new employees will be able to agree to give up their rights to claim unfair dismissal, statutory redundancy pay and other employment rights in exchange for capital gains tax exempt shares, giving them a stake in their employer’s company.

The shares will be worth a minimum of £2,000 and up to the first £50,000 worth of shares will be exempt from capital gains tax on disposal (valued at the time of acquisition). The proposals are popularly referred to as the “shares for rights” proposals.

The Budget 2013

As part of the 2013 Budget, it was announced that employee shareholder status will come into force on 1 September 2013, rather than 6 April 2013 as originally intended. Also, the first £2,000 worth of shares (i.e. the minimum value of shares an employee shareholder may acquire) will be free from Income Tax and National Insurance contributions (“NICs”). This means that they are effectively tax free for anybody receiving the minimum allotment. The tax provisions will also take effect on 1 September 2013.

Criticism of Clause 27 in the House of Lords

While the Chancellor of the Exchequer delivered his 2013 Budget, employee shareholder status faced severe criticism in the House of Lords. Here is a selection of peers’ comments as reported on Hansard:

  • Lord O’Donnell: “In the old days the price of slavery was 20 or 30 pieces of silver – is it now £2,000?”
  • Lord Pannick: “To allow these basic employment rights to become a commodity that can be traded by agreement frustrates the very purpose of these entitlements as essential protection of the employee, who lacks effective bargaining power.”
  • Baroness Wheatcroft: “There are so many reasons why this clause should be opposed today. Much as it grieves me to speak against my Government, and much as I see many things in the Budget that should be applauded, this would end in tears.”

There were some who defended employee shareholder status:

  • Lord Flight: “It is self-evidently very positive, not just commercially but when people feel part of the business for which they are working. Anyone is being blind if they do not perceive that employment law has strayed across the boundary of discouraging employment.”
  • Viscount Younger: “it is the Government’s belief that there is demand for a new employment status of employee shareholder, that it will be used, that it will benefit employers and individuals, and that, in turn, it will help the economy to grow.”

Ultimately, though, the House of Lords voted 232 to 178 to delete Clause 27 at the Report Stage on 20 March 2013, leading some to deem the Budget 2013 announcements as premature.

It is possible that the measures will be implemented by the House of Commons in any event, as the House of Commons can overturn any changes made by the House of Lords. However, a reported lack of support from the Liberal Democrats may make this difficult and could significantly delay the proposed introduction scheduled for 1 September 2013. We wait with bated breath.

Lucy Duane
I am a qualified Employment Lawyer with experience advising clients on both contentious and non-contentious employment law matters. I am currently an Associate at Fasken Martineau LLP. For more blog posts visit: www.employment101.co.uk Please follow me on Twitter: @Employment_101
Lucy Duane
Lucy Duane

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