A promise prevailed over policy when the High Court sided with an employee on whether they remained able to exercise their share options after termination of employment. This recent decision confirmed that an employer’s promise can override the strict terms of a share plan, entitling a former employee to exercise share options after leaving the company.
Case background
GlobalData PLC granted Mr Dixon non-tax-advantaged share options in 2011. During settlement negotiations relating to termination of his employment in 2014, GlobalData’s chief executive officer assured Mr Dixon that his options would remain exercisable as if he had remained in employment. GlobalData did not formally exercise the discretion built into the share option plan, which would ordinarily allow share options to be exercisable post termination of employment. However, the CEO’s assurances were recorded in the terms of a settlement agreement, which also included post-termination restrictions. As a result of the assurances, Mr Dixon also agreed to extend his employment by three months.
When Mr Dixon later sought to exercise his options in 2020 and 2022, GlobalData argued the options had lapsed on termination of his employment. Mr Dixon brought a claim in the High Court, seeking either:
- specific performance of the share options, which required the court to find that the share options had been properly extended; or
- a remedy relying on “proprietary estoppel”, which would allow Mr Dixon to recover damages to compensate him for the promise given to him having been broken.
The importance of clear assurance
The court found that, as GlobalData had not properly exercised the specific requirements under the share plan for exercising discretion to extend options, the claim for specific performance failed. However, it found that GlobalData’s clear assurance that the options would survive termination of employment meant the options should remain exercisable as if Mr Dixon had remained employed. Mr Dixon’s reliance on this promise was both reasonable and to his detriment.
Considerations for employers
This decision does not change the law, but it is a clear reminder to ensure all communications about share options (and all other important matters) are properly thought through, agreed through the appropriate channels and records are kept to document accurately any agreements made. In the case of share options schemes, it is important to ensure that any decisions taken are consistent with the plan rules. This will help minimise the risk of employee misunderstandings, disputes or claims based on promises that could potentially override the existing terms of a share option plan.
