Employee shareholder contracts: are they beneficial?

This week, a new type of work contract introduced by the Government came into effect called an “Employee Shareholder Contract” (ESC). This new employment agreement has drawn criticism from many people, but the Government stands firm on its claim that they will be beneficial to both employers and workers. So, how do they work? We look at the advantages and disadvantages of this new approach to employment rights.

Giving up rights

The premise of the ESC is for workers to sacrifice some of their employment rights in exchange for shares in the company. Certain rights will be given up, and in return a minimum value of £2,000  in shares (on the date they are given to the employee) will be received. Up to the value of £50,000, any growth the shares yield will be exempt from capital gains tax too. The rights that employees will have to forego to enjoy these benefits include the right to flexible working schedules, time off for training or studying, and statutory redundancy payment.

New employees have no choice

Some opportunities to claim for unfair dismissal will also be given up under the contract, however many rights will remain under this category. The Guardian reports that employees will be able to claim against being dismissed for certain reasons such as: “trade union membership, asserting a statutory right (including discriminatory reasons), whistleblowing, or certain health and safety issues”.

Related article: What is employee whistleblowing and how should businesses respond?

As an employer, you cannot force one of these contracts on workers currently under employment with you, however if you prefer you can offer the ESC to new workers without offering an alternative.  When offering an ESC, you must put in writing the exact conditions of the contract, including the rights to be given up. For an ESC to be enforceable the employer must give the employee 7 days to consider the agreement and must ensure that they take legal advice on the contents and pay a proportion of the legal costs of the employee. You must also detail the conditions of the shares the worker will be receiving, how and when they are to redeem them, etc.


The advantages for an employer would perhaps be that the workforce is easier to manage. If this is the case, then it may encourage businesses to take on more staff. From an employee’s point of view, the value of shares may be worth more to them than the rights they are sacrificing. What’s more, with shares in the company, they may feel more connected to the business and more inclined to participate in its successes.


On the other hand, if a company does decide to introduce ESCs into the workplace, there is a danger that new employees will feel separate from existing employees as they will have different employment rights. Perhaps when making company-wide decisions regarding overtime, time off and redundancies these contracts will be a noose round the neck for those that work under them. There are also the shares themselves which could be a point of contention. Share values can decrease as easy as they can increase, and in the event of dismissal or disagreement, the handling and cashing in of shares may not go so smoothly.

It is difficult to gauge how the Employee Shareholder Contracts will affect businesses and their staff, as many of the arguments for and against are simply conjecture. How would the contracts affect you? Let us know on twitter! @myhrtoolkit


Employee Shareholder Contracts – The Guardian

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Written by Fiona Sanderson

Fiona is Marketing Manager at myhrtoolkit. Her areas of expertise include HR systems, productivity, employment law updates, and creating HR infographics.

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