In the autumn of 2017, the government and several supporting parties concluded a political agreement concerning commercial and entrepreneurial initiatives. The recently adopted changes in the Share Options Act are an implementation of one of the initiatives in the political agreement, and, as it was the purpose of the introduction of the Share Options Act, the purpose of this initiative is to make it attractive to establish option programmes. Consequently, the purpose is to abolish the present limitations as to what may be agreed in connection with termination of employment.
The amendments imply that the present sections 4 and 5 governing the employee’s right to non-exercised options upon termination of employment is changed significantly so that it concerns repurchase of already exercised options (and thereby acquired shares). At present, the Share Options Act does not contain any rules on repurchase of acquired shares.
Under the present provisions, the employee’s right to keep non-exercised options depends on the reason for the termination of the employment. Roughly speaking, employees who are not to blame for being dismissed before having exercised granted options are entitled to keep their options, while employees who terminate their employment or are to blame for being dismissed will forfeit the right to the options. With the amendment, this differentiation will lapse.
The provision replacing the differentiated provision will read as follows: “The employee and the employer may not agree that the employer, upon the termination of the employee’s employment, can repurchase shares acquired under a programme or an agreement covered by section 1 at a lower price than the market.”
Consequently, this new provision concerns already acquired shares and provides that an agreement concerning repurchase in case of termination of employment may be agreed upon as long as the shares are repurchased at market price.
WIDER FREEDOM OF CONTRACT IN CASE OF TERMINATION OF EMPLOYMENT
The amendments in the Share Options Act imply that the present limitations in the freedom of contract in relation to termination of employment before the options are exercised will lapse. This will not only make it easier for e.g. entrepreneurs in Denmark to establish share option programmes, but also to simplify international groups’ implementation of global programmes in Denmark as these often contain terms which are contrary to present rules. But the amendments also imply that there is a risk that the retention element is weakened.
The non-governing legal position in connection with termination of employment, which was originally also the reason for the introduction of the Share Options Act, will be revived with the abolishment of the differentiated resignation rules. This leaves the question as to how wide the freedom of contract will be for companies after the abolishment of the present rules. In the absence of regulation, it is for general contract law to lay down the framework of the freedom of contract in share option programmes in relation to the terms governing termination of employment.
NEW REGULATION ON REPURCHASE
In addition, the new provision on repurchase of acquired shares contains a requirement that repurchase of already acquired shares may not take place below market value. The above provides that it is possible to fix the market value, and that the shares are negotiable in the open market. If this is not the case, the new provision will not apply, and agreements in share option programmes concerning repurchase of already acquired shares will be regulated only by general contract law - as is the case today.
It must be assumed that the limitation of both the freedom of contract in relation to the rules on lapse of options in connection with termination of employment and the rules on repurchase of acquired shares, including the limitation of the concept market price in the Share Options Act, will be subject to judicial review in order to lay down the legal framework of the terms of share option programmes.
The wider freedom of contract means that, in the future, it will be even more necessary to make a decision as to the rules applying in connection with an employee’s resignation.
The amendments will come into force already on 1 January 2019 and apply to share option programmes established after that date. Consequently, the amendments will not apply to on-going programmes. The adopted bill has not definitively clarified when a programme is considered established.