A proposed amendment of the Danish Stock Options Act, which was recently sent out for consultation, will repeal the limitations on freedom of contract relating to employee share schemes.
When employees in the course of their employment are awarded share options and certain other types of share-based remuneration, the agreement concerning share-based remuneration must comply with the requirements in the Stock Options Act. First and foremost, the employer must give the employee specified information on the contents of the agreement and the information must be provided in Danish.
In addition, the Act lays down minimum standards for what can be agreed concerning the employee’s rights on termination. If the employee resigns or the employer is justified in dismissing/summarily dismissing the employee due to breach of contract, any share options which have not been exercised on the date of notice will lapse. However, if the employee is dismissed even though there is no breach of contract, or in the event of termination due to retirement, the employee will retain the right to exercise the share options subject to the same conditions that would have applied had the employee still been employed.
Lapse of limitations
Under the draft Bill, which has been sent out for consultation, the limitations on what can be agreed concerning the employee’s rights on termination lapse completely. Thus, the employer may establish a condition that unexercised share options will lapse, notwithstanding the reason for the termination of the employment. It has yet to be clarified whether it according to the draft Bill is possible to decide that such lapse will occur already on the date of notice or the date on which the employee is released from the duty to work, instead of the effective date of termination.
Buy-back at market price
The draft Bill further proposes the possibility of establishing a condition that in connection with the employee’s termination the employer is entitled to buy back shares acquired by the employee under a share-based remuneration scheme. It is a requirement, however, that any buy-back takes place at market value. Because of some rather cryptic remarks in the explanatory notes to the Bill, it is unclear how the proposed provision is to be interpreted in relation to shares that are subject to restrictions on transferability as well as shares whose market value cannot be fixed with certainty, such as unquoted shares.
According to the draft Bill, the amendment is only intended to apply to new employee share schemes. Thus, existing schemes must continue to comply with the current rules.
It is expected that the final Bill will be introduced this autumn, so that it can enter into force as of 1 January 2019.
Norrbom Vinding will follow and comment on the Bill on its passage through the Danish Parliament.
The content of the above is not, and should not be a substitute for legal advice.