I work for a hedge fund that is offering to grant me shares. But in return for my becoming an employee shareholder, I have to give up some employment rights, which sounds worrying. Is it worth it?
It is less worrying than it sounds. You would be giving up the following ordinary employment rights:
1) not to be unfairly dismissed 2) to receive a statutory redundancy payment 3) to request a period of unpaid study leave or training. (However, this right only applies to companies with 250 or more employees) 4) to request flexible working
The first two of these are applicable only where the employee has more than two years’ continuous service and are probably not that valuable in monetary terms, given the likely amount of your remuneration package. Both are capped (for example at £79,000 for unfair dismissal). The others are only rights to request.
You retain the most valuable statutory employment rights (ie whistleblowing and discrimination protection), where compensation is unlimited and is based on your actual financial loss going forward.
The rights you are giving up can also be reinserted into your employment contract. However, you should ensure that your employer does not use this as an opportunity to introduce more onerous or new contractual terms, for example restrictive covenants.
There are tax advantages to becoming an employee shareholder. However, there is now a lifetime limit of Capital Gains Tax relief of £100,000 on the disposal of employee shareholder shares.
If you dispose of your shares, you will still retain your employee shareholder status. If the statutory rights you have given up are not reinserted into your employment contract, then you will not regain those rights, merely because you no longer hold the shares.
It is worth noting that longer notice periods apply to employee shareholders returning from various periods of parental leave.
Overall, I would say the potential growth value of the shares makes the loss of certain employment rights worth it, if you can get the statutory employment rights you are giving up reinserted into your employment contract.
If your employer won’t do this, then you need to balance the unfair dismissal rights and statutory redundancy payment that you are giving up against the potential growth value of the shares, if you are not dismissed before they vest. What happens to the shares on termination will be an important factor in your decision-making process.
Lastly, do bear in mind that there is a cooling-off period to protect you – employee shareholders should not sign the employee shareholder agreement for seven days from receiving legal advice.
Of course, if you decide not to become an employee shareholder, you are still protected from being subjected to any detriment or from being ‘automatically unfairly dismissed’ for which no qualifying period of employment is required and which applies in different circumstances to an ordinary unfair dismissal.
Michelle Chance is an employment partner at Kingsley Napley