Amendment of the Danish Stock Options Act

The Danish Stock Options Act has been amended with effect from 1 January 2019, repealing the limitations on freedom of contract in relation to employee share schemes.


When employees are awarded stock options and certain other types of share-based remuneration, the agreement on share-based remuneration must meet the requirements in the Danish Stock Options Act. Until now, this Act has e.g. laid down minimum standards for what can be agreed regarding employees’ rights on termination.

Last year, a Bill was introduced to amend the Act and this Bill has now been passed without changes. The amendments to the Act, which came into effect on 1 January 2019, concern the two following areas:

Freedom of contract with regard to rights on termination
Prior to the new rules, an employee’s right to share-based remuneration on termination depended on whether the employment was terminated by the employee or the employer as well as the reason for the termination – and in some situations, the employee would keep the share-based remuneration awarded, whereas the employee would lose the share-based remuneration awarded in other situations.

These rules have been changed, so that the parties are free to agree the terms applicable in connection with termination.

Thus, the parties may e.g. agree that the right to unexercised share-based remuneration will lapse, notwithstanding the reason for the termination, or that unexercised share-based remuneration may only be exercised for a short period of time after the employment ends and only in relation to the part of the share-based remuneration that has vested at the effective date of termination. The parties may also agree that the lapse of rights takes effect from the date of notice or the date when the employee is released from the duty to work (i.e. put on garden leave) – and this means that such lapse may take effect prior to the effective date of termination.

The full freedom of contract makes it even more necessary to specifically regulate what terms will apply in a termination situation.

However, it is not a given that full freedom of contract will apply in practice. Depending on the wording of the provisions, there is a risk that the provisions on rights on termination which are normally unilaterally decided by the employer (or the parent company of the employer) may be set aside by the courts for being unreasonable under section 36 of the Danish Contracts Act.

It must be expected that the provisions regarding rights on termination that will be used in the future will be more – and in some situations considerably more – restrictive and unfavourable for employees than today. Consequently, it must also be expected that we will once again see court cases concerning the question of whether provisions on rights on termination should be set aside for being unreasonable pursuant to section 36 of the Danish Contracts Act.

Buy-back of shares at market price
The amended Act gives express statutory authority to agree as part of an agreement on share-based remuneration governed by the Act that in connection with termination the employer may buy back the shares acquired by the employee under the agreement on share-based remuneration.

However, according to the legislative material, an agreement regarding buy-back of shares will only be valid if the buy-back occurs at a price that as a minimum corresponds to the market value of the shares.

In addition, according to the legislative material, such an agreement can only be enforced if ”there is basis for determining the market price of the relevant shares or partnership shares at the date of buy-back” – and, as a consequence, a buy-back provision cannot be applied if ”the relevant shares or partnership shares are non-transferable in the open market pursuant to the scheme”.

It is somewhat unclear what that means, but there is a risk that it must be understood in such a way that in practice it will generally not be possible to apply a provision on buy-back of shares in unlisted companies. In such case, the possibility of buying back unquoted shares depends on whether the parties in connection with the termination can agree on the terms of a buy-back.

If it will not generally be possible to apply a provision regarding buy-back of shares in unlisted companies, it must be assumed that this constitutes a change compared to the current legal situation – a change which appears to lack meaning, because in practice agreements on buy-back of shares are only relevant in relation to shares in unlisted companies.

Effective date
The amended Act entered into force on 1 January 2019 and applies to share-based remuneration schemes established after this date. The old rules will continue to apply for existing schemes.

Norrbom Vinding notes

  • that the amendments to the Danish Stock Options Act have introduced a very significant strengthening of the freedom of contract relating to employees’ rights on termination; and
  • that as a consequence of the strengthened freedom of contract it may become even more relevant to use share-based incentive schemes instead of cash-based incentive schemes.

The content of the above is not, and should not be a substitute for legal advice.

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