Important questions to consider We are here to help

Covid-19 Hub

Covid-19 raises some particular issues and questions for any company with an employee share scheme or which is owned by an employee trust. These range from the immediate (What is the impact on our employee share scheme?  What actions should trustees of an employee trust be taking?) to the longer term (What will our business look like in the future and can new or extended employee ownership be part of our recovery?  How can we reward our employees’ sacrifices?

In the present difficult economic climate are you asking, “What can we do to maximise our chances of survival and bouncing back?

We suggest that you read our short guide, in which we look at the role employee ownership can play: Employee Ownership and Business Recovery

We hope the material below will help you find answers or help kickstart your thinking.

Impact on companies with an EMI option scheme, SAYE options or a SIP

EMI options

Employees holding EMI options who are placed on the job retention scheme (furloughed) may be impacted.  An EMI optionholder must commit 25 hours a week or 75% of their working time to their employer: if this requirement ceases to be met, the option will normally continue (unless the option agreement specifically says it will lapse) but may lose its favourable tax status moving forward.  We know that HMRC are considering this question  (they did not have time to consider it before the job retention scheme was introduced) and it is to be hoped that they will feel able to confirm that EMI tax status will not be lost.

Share Incentive Plan

Employees who are furloughed will retain their status as employees so the leaver provisions under the SIP legislation will not be triggered.   Where participants in a SIP have agreed to salary deductions to fund the purchase of shares (Partnership Shares), they may be worried about whether it is financially wise to continue doing so.  Employees are allowed to stop and re-start deductions.

SAYE options

A holder of SAYE options may defer saving into the scheme for up to 12 months or withdraw their savings and let their option lapse.   You will not be able to give your employees financial advice but clearly each employee in an SAYE scheme should consider their position carefully.   Whilst share values will have  fallen significantly in many companies over recent weeks (so options may be “underwater” ie exercise price is greater than current share price), they may to an extent recover.

Participants in share option schemes which don’t involve a contribution (EMI, CSOP, unapproved options) will not have this concern and, if their options are now underwater, generally will have nothing to lose by sitting tight and waiting to see if share value recovers.  Again, you cannot give them advice on what they should do.

Responsibilities of trustees of an employee trust

What particular actions should the trustees of an employee trust, as owners of their company on behalf of its employees, be taking?

The trustees’ duties

The precise duties of the trustees of any kind of employee trust (either an employee ownership trust or a more general employee benefit trust) will be spelt out in the trust deed but the big picture is that they will have an overriding duty to act in the best interests of the beneficiaries.

In any employee-owned company facing challenges because of the current situation, the trustees should generally first be looking for assurance from the directors that appropriate steps are being considered to ensure continued viability.  So if this information, with any recommendations, has not already been volunteered, it is recommended that trustees ask for it – and for a quick response.

Will the trustees’ consent be required to any recommended measures?

There may be a list of particular steps which the company’s directors may only take with prior consent from the trustees.  If such a list exists, both the directors and the trustees should ensure they are familiar with it so that if any action on it is contemplated, trustee agreement is sought.

What if a particular proposed step is not on the list, or there is no list? 

In this situation, trustees may still want the directors to keep them informed about any significant action they propose to take.  Whilst they may not wish to hamper the directors’ ability to make quick decisions, there should be open lines of communication so that they have the opportunity to give their input on any major matter.  In this fast moving situation, it may be hard to define what is a major matter and in that situation the directors and trustees should wherever possible apply a common sense and practical approach.

For any proposals affecting employees directly, it is generally good practice for trustees to be involved.

Steps impacting on employees directly

Steps being considered by the directors may include reducing the costs of employment.  This could include redundancies, inviting employees to join the job retention scheme, a shift to part time working, salary reductions, or other measures.

Aside from the statutory requirement to consult with employees in certain cases (for example, where it is proposed to make 20 + employees redundant in a 90 day period), it is likely that trustees will wish to be consulted on any proposed measures.  Questions to consider may include:

  • If redundancies are proposed, are there any alternatives (including the job retention scheme)?
  • If the job retention scheme is to be used, how to choose which employees are to be invited to be “furloughed” under it? Is there clearly no work for certain employees?

There may be circumstances where the trustees decide to go one stage further and then consult with the trust’s beneficiaries.  They should check the trust deed (and any other connected documents) for any requirement or expectation that they do this.  Subject to that, whether they do so may depend on their judgement as to how helpful it will be in reaching the best quality decision, how practical and how much time is available.  In our experience wider consultation can have a significant positive impact on the quality of decision making, ensuring that issues are taken into account that neither directors nor trustees would necessarily have been aware of.

The importance of clear communication

It’s important to be open with employees about what is happening and how it might affect them.  Directors should be keeping trustees regularly informed, and trustees should ensure that employees are kept informed.

It is wise to confront a difficult situation, address it and tell your employees about the impact, trying to hide it will just make it worse.

Can an employee trustee who is furloughed continue as a trustee?

Our view is that this should be allowed.  The trustee (or director of trustee company) is providing a service to the trust, not their employer.  We recommend that a trustee in this position not be paid for performing this role and that they provide only the time that is needed.  So an hour or two a week should be fine but a regular and heavy time commitment might be too much.  There is as yet no government guidance on this, so the position is not guaranteed.

A new deal for loyal and committed staff; a plan for business recovery

Beyond the lockdown: could an employee ownership stake play a key role in your company’s future?

We’ve created this page for anyone interested in building a stronger bond with their employees, either as part of a plan for business recovery as the lockdown eases or more immediately.

Employee Ownership Association Covid-19 Information Hub

As the Coronavirus (COVID-19) situation continues to develop the EOA is here to listen, signpost and support their members and the EO Community.

Coronavirus (COVID-19) resources page

Robert Postlethwaite of Postlethwaite Employee Ownership & Share Schemes Solicitors

If you would like to explore how employee ownership or an employee share scheme could work for your company, please call me on 020 3818 9420

Robert Postlethwaite, Managing Director