Employee shareholder status was not terminated by subsequent service agreement


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The Employment Appeal Tribunal (EAT) has considered in Barrosso v New Look Retailers whether employee shareholder status could be terminated when a director's service contract was subsequently entered into. It held that, in this case, it could not.

The claimant was employed by New Look in November 2012 and in June 2015, when the company was sold to a new company, he was offered 7,000 shares in exchange for becoming an employee shareholder under section 205A of the Employment Rights Act 1996 (ERA). Although he signed an employee shareholder agreement he was concerned about losing his statutory rights, but was reassured by his employer that the employee shareholder status was being used to gain tax advantages, and once these advantages had been realised, his employment protections would be reinstated. In March 2017 he entered into a director's service agreement. He was dismissed in February 2018 and brought a claim for unfair dismissal, arguing that his employee shareholder status had been terminated by the service agreement.

The tribunal rejected his claim and, on appeal, the EAT agreed. It noted that the ERA does not provide for how employee shareholder status might be terminated, and agreed with the tribunal that it might be terminated if the parties entered into a subsequent inconsistent contractual arrangement (the service agreement here was silent on the question of employee shareholder status and did not deal with the matters addressed in the employee shareholder agreement). The EAT held that the most obvious way of terminating employee shareholder status would be an agreement for the employee to sell or give back shares to the company.  While there may be other possible forms of agreement between the parties that would lead to a similar result, this was not the case here, and there was no evidence to suggest that the service agreement entered into signified that intention.

Take note: It's worth noting that the tax reliefs associated with employee shareholder status were withdrawn on 1 December 2016 so it's unlikely that there will be any new employee shareholder arrangements although existing arrangements can remain in place.  However, for those who wish to terminate their employee shareholder status it's clear that there must be an express rebuttal of their status. Entering into a new employment contract, as in Barrosso, will not suffice.

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