In Dixon v GlobalData PLC, the High Court has ruled that an ex-employee could rely on an assurance in a settlement agreement that his share options would remain exercisable after termination, even though the options had lapsed due to the employer’s failure to formally extend the exercise period in accordance with the scheme rules.
Background: Exit Negotiations and Assurances
During exit negotiations in 2014 between GlobalData and Mr Dixon, the Chief Executive assured him that discretion would be exercised to ensure that his share options would not lapse on termination of his employment. This assurance was also reflected in Mr Dixon’s settlement agreement.
In 2020 and 2022, Mr Dixon sought to exercise his share options. However, he was informed that they had lapsed when his employment ended since there had been no formal board decision exercising discretion to extend them, as required by the scheme rules.
Mr Dixon brought High Court proceedings. His claim for breach of contract failed because the group parent company, which operated the share option scheme, had not taken the formal steps necessary to extend his options. However, the Court held that Mr Dixon could enforce the promise made to him in the settlement agreement under the equitable doctrine of proprietary estoppel. This doctrine has three main elements:
· Someone has been led to believe they have a right to property, including land, shares or options. Here, Mr Dixon had been given a clear verbal and written assurance that he could retain his share options.
· They have acted to their detriment in reliance on that belief. In this case, Mr Dixon had relied on that assurance when he agreed to other exit terms, such as a four-month non-compete restriction and a later leaving date.
· It would be inequitable for the other party to withdraw their promise. Here, the Court held that GlobalData could not be allowed to deny Mr Dixon the benefit of the options he had been promised.
The company tried to rely on a clause in the share option scheme that prevented any claim for compensation for the loss of any benefit under the plan, including options that lapsed on termination (known as a Micklefield clause). This argument was rejected on the basis that the clause was not meant to prevent claims based on assurances that an employee’s rights to options would continue or claims for rights acquired through the remedy of proprietary estoppel.
This case illustrates the importance of ensuring that settlement agreement clauses dealing with share options are consistent with the scheme rules and that the board or committee responsible for administration of the scheme takes the formal decision required to implement a commitment given to a departing employee. It is also crucial to clearly document the process, including the reasons for exercising or not exercising a discretion to allow an employee to retain their options.
