A recent court case has highlighted the risk of making promises about equity. And the message is clear: make sure you have someone that knows what they’re doing when it comes to setting up and managing share/option schemes, and have clear guidelines about who can makes changes to it.
Having said that, this is a fairly extreme case: in Dixon v GlobalData Plc, a senior executive was given assurances during his exit negotiations that he could keep his share options, and this was reflected in an agreement. But the company later said that the options had lapsed because the formal rules hadn’t been followed. The court disagreed, however, confirming that it would be unacceptable for the company to refuse to give him the options, because he’d relied on the promise, to his detriment, whether the right approvals were obtained or not.
The case is a reminder that decisions about share/ option schemes need to be properly documented and approved. (It also flags that standard clauses in share schemes that are used to exclude employment claims for lost equity – known as Micklefield clauses – may not always protect a company against a claim.)
The practical takeaways:
- Share/ option scheme decisions need proper governance and documentation
- Conversations, whether they’re in a meeting, by slack, email, etc., can be legally binding if an employee relies on them
- No-one in the team (whether HR or otherwise) should be making promises about equity without the right sign offs PLUS specialist input
At LegalEdge we manage BAU legal work, including staff matters, and often work with specialists in employee ownership when equity is in the mix.
For the full analysis, read the article from Postlethwaite here.
