This is probably the most common question I get asked by senior executives, because their share options are often the highest value part of their renumeration package.
Giving senior executives share options in a company is a great way for a business to incentivise and retain/tie in their senior level employees. However, this approach can present significant challenges when employment comes to an end.
When the employment ends, the rules of the applicable scheme will usually set out what happens to your share options depending on why your employment has ended.
There may be good or bad leaver definitions that apply to determine how your share options are treated.
If you are classed as a good leaver (often the case with ill health, disability, retirement and redundancy) you may get to retain your options, or your unvested options may be pro-rated, depending on what the scheme rules say.
If you are classed as a bad leaver (often in the case of capability dismissal, misconduct dismissal or resignation) you may lose all your options. Where the reason for your dismissal is contested you may be able to agree better leaver treatment under a settlement agreement.
While you may feel that you deserve compensation for the loss of your share options, the company may not agree.
Hence the first thing to check is what the relevant scheme rules say will happen to your share options when you leave your employment.
Your employer is saying that you will lose your share options when your employment ends – what can you do?
Employers often include a clause in the share scheme rules to exclude any liability for loss of share awards arising from a wrongful dismissal (i.e. a dismissal in breach of contract).
Even where there is no such clause, the employment tribunal can only award up to £25,000 for breach of contract, which may not get you very far if your share options are valuable.
If you are unfairly dismissed (i.e. a breach of your statutory rights) and you have over 2 years employment, you may be able to include the value of shares in your claim. This is because the value of the shares represents a loss you incurred due to the unfair dismissal.
An exclusion clause will not work to protect an employer against a claim for unfair dismissal and you may be able to argue that compensation for unfair dismissal should include an element for the share awards lost (if viewed as a benefit being lost as a result of the unfair dismissal).
The issue is that there is a cap of £115,000 on the compensation awardable by the employment tribunal for unfair dismissal which may not go very far in terms of future loss of salary and loss of share options.
There is no cap on tribunal awards for discrimination and protection applies from day 1 of employment, hence where termination can be framed as being due to discrimination, a claim for loss of share options can sometimes be tagged on the back of a successful discrimination claim.
A settlement agreement can include agreement on how your share options will be treated upon termination, this can include agreement on leaver status and the attachment of a table setting out the options held, the number that will vest, and when.
This area of employment law is very complex and therefore it is advisable to seek expert advice if you find yourself in this situation.
For further, specialist guidance, please contact David, recognised as a leading partner for senior executives in the 2025 edition of Legal 500, the premier guide to the best employment lawyers in the UK.
This page/article/blog is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.
