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How Do You Bring Employee Shareholder Status to an End?

on Friday, 06 September 2019.

A recent case demonstrates that the only safe way to bring 'employee shareholder' status to an end is to expressly say so in a written agreement.

Barrasso v New Look

Mr Barrasso started work with New Look in 2012 and two years later became UK Managing Director. In June 2015, Mr Barrasso was offered shares in the company in exchange for becoming an employee shareholder.

Under s205A of the Employment Rights Act 1996, employees can become employee shareholders by agreeing to give up their right to claim unfair dismissal and the right to a statutory redundancy payment in exchange for a minimum of £2,000 worth of shares. At the time, employee shareholder status also offered Mr Barrasso significant tax advantages.

However, Mr Barrasso was concerned about losing his statutory rights and in September 2015 entered into a separate agreement with New Look that he would be contractually entitled to the equivalent of an unfair dismissal award and statutory redundancy payment.

In March 2017 Mr Barrasso signed a new employment contract. The new contract stated that it superseded all previous agreements but preserved the effect of the September 2015 agreement.

When Mr Barrasso was dismissed in February 2018 he attempted to bring a claim for unfair dismissal, however the Employment Tribunal found he was excluded from this protection as he had employee shareholder status. Mr Barrasso appealed.

The Appeal

The Employment Appeal Tribunal (EAT) decided that entering into a new agreement will only terminate 'employee shareholder' status if it is inconsistent with that status continuing. As such each case will need to be looked at on its own facts.

In Mr Barrasso's case, the EAT found that the 2017 agreement was not inconsistent with his status as an employee shareholder even though it contained a 'whole agreement' clause. As such, he was not able to bring a claim for unfair dismissal in the Employment Tribunal.

Best Practice                      

If an employer wants to terminate an individual's employee shareholder status and replace it with a new arrangement, it must make it absolutely clear that this is the intention. This would usually involve an express statement in writing confirming that the employee shareholder arrangement is coming to an end.

It should be noted that employee shareholder status does not have a long future. The previously advantageous tax reliefs have been abolished for agreements entered into after 1 December 2016 and the government has announced its intention to close employee shareholder status to new users at the earliest opportunity.

For more information please contact Michael Halsey in our Employment Law team on 020 7665 0842, or complete the form below.


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