Benefits in employment are sometimes as important as the salary.
Share options are usually offered as a form of long-term incentive arrangement, designed by an employer to attract and retain workers. The concept is that shares in a company are granted over the course of time depending on factors including work performance and the worker’s length of service. It follows that the entitlement of leavers usually depends on the specific circumstances in which the person is leaving.
We are often asked to advise in this situation and it is usually necessary to consider the following questions.
What does your employment contract say about share options?
Your contract may say very little about this, although there may be reference to a separate plan about share options. Often your employer will be held to observe the plan rules when you exit and there is likely to be little flexibility about what they can and cannot do. This is often because these schemes have been the subject of HMRC clearance or other tax rules.
What does the specific plan say?
Usually, a specific plan will explain what a leaver should expect to receive if their employment ends. Sometimes these plans refer to laws of an overseas jurisdiction, but they all tend to treat the different types of leaver in similar ways. As a starting point, they tend to treat redundancy and ill health leavers better than any other types of leavers. You may be a Good Leaver, an Intermediate Leaver or a Bad Leaver and the classification will have important consequences for your shares/options.
What if you believe you are being treated unfairly?
Sometimes, and most commonly in fact, share plans include a term called a discretion, which broadly means the employer or plan administrator has some choice about how to treat departing employees and usually this will depend on the reason for the departure. This wording is usually something like: “the administrators of this plan have the sole discretion to do… [X, Y or Z]”. Under wording like this, it may be arguable that the plan should treat you better than might otherwise have been the case.
Your employer’s own plan may not be as clear as that but considering whether it has a choice about how to treat you, as a leaver, may still be a point to consider or negotiate.
General point about how an employer should ‘use’ a direction
Generally speaking, if an employer has a discretion, in relation to share options or in any other type of employment situation, it should exercise/use this in a rational and reasonable way. Failure to do so may result in a breach of contract claim.
A quick note on malus and clawback provisions
Your share plan might include a malus or clawback term, which talks about you forfeiting some of your entitlement if you have committed or in future commit certain misconduct or act in undesired way. Your options in this situation will depend on the specific circumstances, but you may be able to take some comfort from the fact that the English Civil Court usually considers terms of the type quite narrowly/restrictively.
As with many aspects of employment, you must take advice and be sure to clarify and protect your position any time you are entertaining changing your job.
This blog was written by Ben Lindsay, Solicitor at didlaw.
