Employee ownership trusts: establishing an employee council or forum
When an employee ownership trust (EOT) is established, a majority stake in a business is sold to a trust for the benefit of the business’ employees.
There is no legal requirement to form an employee council when establishing an EOT but many businesses choose to do so. One of the many advantages of becoming an employee-owned business is that employees are generally more committed and engaged, leading to improved employee wellbeing and increased productivity.
What is an employee council or forum?
An employee council or forum is a body of employees that enables the views and opinions of employees to be considered when certain business decisions are made. It might also be known by different names.
How and when is an employee council established?
An employee council can be established at the same time as an EOT. However, we find that many businesses prefer to establish an employee council within three to six months after their transition to employee ownership. Alternatively, some businesses may already have an employee council and decide to enhance their existing framework, instead of creating a new employee body.
We recommend that an employee council is created and governed by a set of written rules. The rules should set out:
- the function and purpose of the employee council;
- the number of employee council members;
- how employee council members are selected;
- how the employee council operates; and
- how the rules may be changed.
What is the role of an employee council?
As there is no legal requirement to establish an employee council when setting up an EOT, businesses can be flexible about the role of their employee council, if they decide to have one. Many EOT companies decide to have an employee council to provide a channel of communication between employees and directors, and between employees and the trustees of the EOT. It is a mechanism to allow for employees’ views to be considered when certain decisions are made.
It is also possible to give the employee council more formal powers, for example, an ability to appoint directors to the board of the company or a requirement for the trustees of the EOT to consult the employee council before the trust makes certain decisions.
There is no one-size-fits-all approach, so we can help tailor arrangements so that they work for your business.
How are employee council members selected?
The arrangements for selecting and appointing members of the employee council should be set out in its rules. Typically, employees nominate colleagues to be appointed and then to vote for council members from the employees who have been nominated. Sometimes, different council members represent different teams or locations of the workforce.
In many EOT businesses, a company representative attends employee council meetings. The company representative can help guide discussions and explore different ideas but usually does not have a vote when the employee council is making decisions.
How can Moore Kingston Smith help?
At Moore Kingston Smith, we are professional members of the Employee Ownership Association. We have a multidisciplinary team of legal, tax, accountancy and HR specialists with expertise in helping companies transition to employee ownership. We can help you to explore your options for establishing a framework to take your business to the next stage of employee ownership. Potential benefits include creating a lasting legacy for your people, as well as significant advantages for your founders who sell shares to the EOT. Get in touch today.
This article is provided for information purposes only. It is not intended to constitute legal advice, and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances.