Employee shareholder status

Barrosso v New Look Retailers Ltd

Someone who validly becomes an ‘employee shareholder’ did not revert to ‘employee’ status when he later concluded a service agreement with his employer.

An employer and prospective/existing employee can agree that, in return for fully paid up shares worth at least £2,000, the employee will give up, among other things, their rights to ‘ordinary’ unfair dismissal protection (except for reasons that are automatically unfair or related to discrimination) and their right to a statutory redundancy payment (s. 205A of the Employment Rights Act 1996). Such employees are termed ‘employee shareholders’. At the time of its introduction in 2013, the legislation for such employees accorded them special tax reliefs - but these didn’t last long and tax benefits to new employee shareholders were removed in 2016.

Although no official figures are available, take up of this scheme is rumoured to be small. However, there are employees affected and this is the first appellate decision to consider their status, specifically how employee shareholder status can be brought to an end.

Background

Mr Barrosso started work with New Look (NL) in 2012 and two years later became its Managing Director. When NL was sold in September 2015 to another company, he was offered shares in the parent company in exchange for becoming an ‘employee shareholder’. The relevant agreement was signed which met the required legal tests. To assuage Mr Barrosso’s fears about losing his statutory rights, he and NL also entered into a separate agreement that he would contractually be entitled on termination to the equivalent of an unfair dismissal award and a statutory redundancy payment (subject to independent arbitration). In March 2017 Mr Barrosso signed a new employment contract which made no mention of his employee shareholder status and stated that it superseded all written and oral agreements between Mr Barrosso and NL. However, it purported to preserve the effect of the September 2015 agreement in granting a contractual right to unfair dismissal and redundancy payments. Mr Barrosso was dismissed in February 2018 and he brought an unfair dismissal claim. A tribunal dismissed his claim, finding that the March 2017 contract had not changed his employee shareholder status and he was thus excluded from unfair dismissal protection. Mr Barrosso appealed.

EAT decision

The appeal was dismissed.

The EAT rejected Mr Barrosso’s attempt to rely on European law and s. 203 of the Employment Rights Act (which imposes restrictions on contracting out of statutory protections). It was accepted that the strict conditions in s. 205A had been met. Also, s. 205A is a separate provision from s. 203 which imposes restrictions on contracting out of statutory protections and so cannot be considered as an agreement for s. 203 purposes.

The EAT also considered s. 205A and the reinstatement of statutory employment rights (not addressed in the legislation). The question of when employee shareholder status comes to an end depends on the applicable facts, not on statutory construction. It might be terminated if the parties entered into a subsequent inconsistent contractual arrangement, e.g. the employee agrees to sell or give back his shares to the company – although there may be other possible forms of agreement which would lead to the same result. Here, had NL and Mr Barrosso indicated in the March 2017 agreement that Mr Barrosso was no longer to be recognised as an employee shareholder? No held the EAT. The 2017 agreement did not deal with Mr Barrosso’s s. 205A status. It was however intended to preserve the ‘reinstatement’ of contractual rights (i.e. the contractual replication of statutory rights that was the means by which the parties had agreed to ‘reinstate’ Mr Barrosso’s former unfair dismissal and redundancy protections) as provided by the September 2015 agreement. There was nothing to suggest that the parties intended those contractual rights to exist alongside the statutory rights that they replicated.

Link to judgment: https://www.bailii.org/uk/cases/UKEAT/2019/0079_19_0508.html

Comment

This is possibly one of the most under-utilised pieces of legislation but it is useful to have an appeal court decision in the unlikely event of it coming up.