David in the FT – Being dismissed, do I lose all my share options?

Q: I am being dismissed – do I lose all my share options?

David Greenhalgh says:

A: Share options are frequently the single most important financial element in a severance package. There has been a general industry trend towards using share-based incentives rather than cash bonuses to ensure that employee performance aligns with shareholder interests.

Whether or not you lose your share options can sometimes depend, in part, on the reason for your dismissal. But the first step will be to find out which type arrangement you have in place, as there are many different types of share incentive schemes such as CSOPs, EMIs, SAYEs and LTIPs.

Most schemes contain broadly similar terms in relation to what happens when an employee leaves; and frequently, a distinction is made between ‘vested’ and ‘unvested’ options.

Exiting employees will usually have a small window of a few weeks or months during which time they can exercise any vested share options e.g. where the vesting date has passed on options earned due to the employee achieving certain performance targets or completing a certain length of service.

The bigger challenge is in dealing with unvested share options which are often stated to ‘lapse’ and fall away if the employee leaves.

The reason for the dismissal will usually be important with schemes distinguishing between good leavers and bad leavers. For instance, employees leaving due to redundancy or retirement will normally be considered good leavers and may benefit from accelerated or partial vesting of any unvested options.

By contrast, employees who leave of their own volition or who are dismissed for gross misconduct may find that all their options are lost – including any that have already vested.

Integrated into most schemes is the right of the business to override the provisions of the scheme if it so wishes. This power is often reserved to the company’s Remuneration Committee. Persuading the company to exercise any discretion in your favour is usually the key to successfully negotiating a settlement.

If you are unfairly dismissed you may be able to claim the valuable of your options, subject to any cap, as part of that claim even if your share plan documents say that you waive all such rights. This is because employees are required to receive independent legal advice before they can be said to have given up certain employment rights.

If you do decide to seek legal advice, make sure your employment solicitor has experience in dealing with issues relating to share options specifically since this is quite a complicated area.

For immediate assistance with employment law issues, please call David now on 0203 603 2177 or Click To Make A Free Online Enquiry.

Posted on Wednesday 29th July 2020

This 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.