Under the present Share Options Act, the reason for termination is important in relation to the employee’s right to keep subscription rights and options to purchase after the effective date of termination.
In general, the employee will keep the rights if the termination of the employment is due to the employer's affairs (good leaver). In these situations, the employee will also be entitled to a pro rata part of the grants to which the employee would have been entitled if the employee had been employed at the end of the financial year or at the time of grant.
But if the termination is due to the employee’s breach or own termination, the right to non-exercised options will lapse at the time of the termination of the employment (bad leaver).
PROVISION ON GOOD/BAD LEAVER SITUATIONS ABOLISHED
If the bill is adopted i its present form, the provision on the employee’s right to keep subscription rights and options to purchase in connection with the employer’s termination of the employment will be abolished.
This means that it will be possible to agree that employee shares not exercised at the effective date of termination will lapse in case of termination, irrespective of whether the termination is caused by the employer’s affairs.
REPURCHASE OF SHARES AT MARKET PRICE
Under the present Share Options Act, it is not possible to agree on derogations to the detriment of the employee. This means that it is not possible to agree that the employer can repurchase the shares even if at market price. This is due to the fact that a repurchase clause may be to the detriment of the employee.
The bill proposes that, in the future, the employee and the employer may agree that the employer can repurchase shares acquired under a scheme covered by the Share Options Act. However, provided that the employer repurchases the shares at market price.
BREAK WITH THE TRADITIONAL OPINION
The intentions behind the bill are to increase flexibility and simplify the rules. However, it is worth noting that the bill breaks with the employee’s protection in connection with termination due to the employer’s affairs.
Prior to the adoption of the Share Options Act, case law implied that the employee’s subscription rights and options to purchase were governed by section 17a of the Salaried Employees Act.
With the Share Options Act, bad/good leaver scenarios were introduced according to which the employee would lose the right to non-exercised options in a bad leaver situation, while the provision governing the good leaver situation was the same as section 17a of the Salaried Employees Act concerning a pro rata part.
The new bill will settle the legal position of section 17a of the Salaried Employees Act, and the employer will in fact, without any financial consequences, be able to terminate the employee shortly before the employee can exercise his options even if the employee has put in extra efforts or has accepted a lower salary to be able to exercise his options.
The employer will thereby be able to ensure that resigned employees do not have any subscription rights and options to purchase shares in the company or shares acquired as a consequence of these rights.
The bill is expected to come into force on 1 January 2019.
We will follow the bill closely and forward a Newsletter when and if the Bill is adopted.