Workers are being warned by a Newbury legal expert that a new Government scheme allowing them to take company shares in exchange for giving up their employment rights could badly backfire.
The Government announced last week that from next April staff to sign away rights including unfair dismissal and redundancy, in return for between £2,000 and £50,000 worth of company shares, which are free from capital gains tax.
But Derek Rodgers, managing partner of Gardner Leader, said: “Signing away employment rights leaves an employee in a vulnerable position and means they are easier to sack. Losing that protection and security in exchange for shares is not a good deal as there’s no guarantee that those shares will be worth anything in the future.
“Selling a minority shareholding in a private business can also be near to impossible unless you sell it back to the company or fellow shareholders, which could be quite a difficult discussion if they have just sacked you.”
Gardner Leader would advise any employee who does sign up to first check the conditions of the shares-for-rights ‘owner-employee’ contract, which is likely to include a shareholder agreement. These usually include restrictions on how shares can be bought and sold with some deals obliging workers to sell shares back to the company if they leave.
Derek Rodgers said: “Some companies may even require the shares to be sold back at the price they were bought for originally, leaving the employee with no job, no profit on their investment and no financial security.
“To avoid being left in such a position, employees should seek professional legal advice before signing an ‘owner-employee’ contract and shareholder agreement; advice which should ideally be offered through the company.”
He warned that unless the company is listed on the Stock Exchange workers will need to hire an accountant to help work out the actual worth of their shares and he added: “The ‘shares-for-rights’ scheme is a risk to the future of any worker but if an employee does decide to take the gamble then they must ensure they are clear on the legal implications and restrictions before signing anything.”
For more information, please contact Derek Rodgers on 01635 508080.