A Yorkshire lawyer has queried whether new shareholder status employments contracts – aimed at helping recruit and retain the best employees – will have the desired effect.
The legislation, introduced this month, means small UK companies operating in highly competitive sectors can offer staff a stake in the business as shareholders.
The take up and success of these new shareholder status employment contracts are forecast as being particularly effective for fast growing start-ups.
“In addition to ‘employee’ and ‘worker’ status, new equity-linked employment contracts give a third group of employees part ownership of the company they work for, through the receipt of shares worth a minimum of £2,000 and exempt from capital gains tax up to the value of £50,000
“This shareholder ‘deal’ means the owner-employees will relinquish some employment rights relating to unfair dismissal, redundancy and the right to request flexible working and time off for training.
“They will, however still be protected in law from unfair dismissal procedures stemming from discrimination and whistleblowing.”
MrWarne stressed it was not compulsory for employees to take up the new contracts and employers cannot lawfully compel them to do so or punish them if they have declined.
“Offering new employees a stake in the company may help to attract and retain the calibre of people that may have previously been out of reach, or if recruited, may have rapidly sought to move on to the bigger competitors, taking their skills and talent with them.
“The scheme could also appeal to ambitious and high performing people who may actively choose to work for – and stay in – a smaller, high growth company they have ownership in.
“Alternatively, it may only be of real interest to senior executives, the very group regularly offered shares under existing share option schemes.
“Unless the value of the shares is significant, lower paid employees may not want to feel tied to a company or give up rights in today’s uncertain economic climate.”
He concluded by saying employers may feel that as employees recruited after April 6 2012 need to have worked at the organisation for two years before they can bring a claim of unfair dismissal, that the rights compromised by this scheme add little benefit but cause further untested red tape.