Under section 36 of the Contracts Act, the Supreme Court has just set aside an employee's obligation to sell back shares acquired through an investment programme not covered by the Salaried Employees Act or the Stock Options Act.

The ruling means that buy-back schemes concerning an employee's purchase of shares may be set aside in full if – taking the specific circumstances into consideration – it is unfair to maintain the scheme. It thereby seems to be decisive whether the company or the employee terminates the employment, and whether there is reasonable cause for the termination.


The case concerned an employee employed in an executive position who was offered participation in an investment programme in 2005 according to which he purchased shares in the company's parent company. The shares were purchased from the company's holding company and through an agent in Luxembourg. According to agreement, the agent kept the title to the shares on behalf of the investors, including the employee, exercising certain rights over the shares. The financial advantages went to the investors. According to agreement, the shares were to be sold back if the employee resigned from his position with the company. The employee was terminated in December 2006 and was ordered to transfer his shares to the company at market price.

The employee claimed that the programme was covered by the provision of section 17a of the Salaried Employees Act, the Stock Options Act and section 36 of the Contracts Act, and that he was therefore not obligated to sell back his shares, but that he was entitled to acquire and keep the shares.

The findings of the High Court

The Eastern High Court found that, according to the wording, the granted rights were neither covered by section 17a of the Salaried Employees Act nor the Stock Options Act. The High Court also found that there was no basis for setting aside the obligation to sell back under section 36 of the Contracts Act.

The findings of the Supreme Court

A majority of three out of five judges found that when assessing whether to set aside the obligation to sell back under section 36 of the Contracts Act, this assessment should be based on the fact that the right to participate in the specific investment programme had been obtained as a consequence of the employee's employment. The Supreme Court attached importance to the fact that the investment programme was first of all based on a wish to retain the employee, and that the employee had been terminated by the company without the employee having caused the termination. The Supreme Court also referred to the principles and considerations of section 5 of the Stock Options Act.

Subsequently, the Supreme Court found that the employee was entitled to keep his shares as if he was still employed with the company.

The content of this Newsletter is not, and should not replace, legal advice.


Erik Wendelboe Christiansen


Marianne Lage