More flexibility and relaxation of the protection of good leavers
As per 1 January 2019 new rules have been introduced in respect of share option programs for employees.
Until 1 January, the statutory main principle has been that an employee would lose his exercise right to allocated purchase or subscription rights upon the employee’s own resignation. On the other hand, the employee has been entitled to retain the rights if the employee was terminated by the employer (unless the employee had failed to fulfil his obligations as an employee). These provisions have so far been mandatory and thus no deviations could be made to the disadvantage of the employee.
Some of the previous restrictions on the freedom of contract have been lifted in relation to the development of the share option programs in connection with the amendment of the Danish Share Option Act and as 1 January 2019 there is no longer any mandatory protection of good leavers to this extend. In other words, there is now freedom of contract in relation to whether employees in connection with the termination can retain the right to options. Contrary to earlier, it is now possible to agree that the employee forfeits the right to exercise the allotted purchase or subscription rights to shares even in a good leaver situation.
Despite this statutory relaxation, companies can still choose to establish arrangements where the rights for good leavers are different from the rights for bad leavers.
The amendment also introduces the legal basis for entering into agreements that the employer can buy back the allotted shares at marked price at the employee’s resignation. The new provision is mandatory with the effect that no arrangements can be established where a repurchase in connection with a resignation is made below the market price. The repurchase clause presupposes that the market price can be determined at the time of the repurchase. Criteria for determining the market price will be established in connection with a buy-back clause. If the shares are not negotiable, repurchase agreements can be made according to the general contract law principles and according to previous case law.
The amendment does affect schemes established before 1 January 2019. Such schemes will continue on the basis of previous regulation until they lapse.
It is recommended that companies’ schemes are reviewed in order to adjust the conditions for future allocations. It is also recommended that employees carefully review the terms of future allocations as there is no longer the same statutory protection for employees as good leavers.
Please contact Benjamin Lundström, Partner and Attorney at law for further information or assistance in relation to employee share schemes. SIRIUS Law Firm specialises in labor and employment law – see link.