Loss of share options as a head of compensation, and how the framework differs between contractual and statutory claims. O'Laoire v Jackel International Ltd; Micklefield v SAC Technology Ltd.
Wrongful dismissal; damages; least burdensome obligation; damages for wrongful dismissal are assessed on the assumption that the employer would have performed its obligations in the manner least burdensome to itself; where the employer had a discretion as to whether to confer a benefit such as a bonus or share options, damages are assessed on the footing that the employer would not have exercised that discretion in the employee's favour; a claimant cannot recover more than the minimum the employer was contractually required to provide.
Share options; bad leaver; exclusion clauses; 'Micklefield clauses'. An executive entitled to six months' notice was summarily dismissed a week before his options became exercisable. The scheme provided that an option holder ceasing to be an executive for any reason lost his options and was deemed to have waived any compensation for their loss. The Chancery Division dismissed his claim. The waiver was an exclusion clause exempting the employer from liability for loss of option rights: it escaped the Unfair Contract Terms Act 1977 not because UCTA spares employment contracts but because para 1(e) of Schedule 1 excludes contracts relating to the creation or transfer of securities. A clear express term could not be overridden by the implied term that a party may not take advantage of its own wrong. Contrast Chapman v Aberdeen Construction Group, where UCTA was held to apply, and Levett v Biotrace, where wrongful dismissal did not defeat the option [IDS, 9.105-9.106].
Share options; unfair dismissal; compensatory award; the tribunal may include in the compensatory award the value of a lost chance of share options vesting, even where the employee had no contractual entitlement to the options; the tribunal is not limited to compensating only for contractually-guaranteed rights and may assess the value of benefits, including share options, the employee would likely have received but for the dismissal.
Share options; exclusion clauses; Unfair Contract Terms Act 1977. A clause in a share option scheme purporting to exclude the employer's liability to compensate the employee for the loss of his option rights on termination was held void under s.23(a) of the 1977 Act. The scheme rules were a secondary contract, and the clause restricted a remedy arising on breach of the primary contract of employment, so the employer could rely on it only if it proved the term would have been fair and reasonable had it been included in the contract of employment itself. The decision casts doubt on Micklefield v SAC Technology Ltd, where the exclusion in para 1(e) of Sch 1 UCTA for contracts relating to the creation or transfer of securities defeated the claim; that exclusion does not apply to a secondary contract in England, and the equivalent English route is s.10 UCTA. A Scottish decision, persuasive only in England.
Share options; wrongful dismissal; bad leaver; an employer who is in wrongful breach of contract cannot rely on a bad leaver provision in a share option scheme to deprive the employee of options; the characterisation as bad leaver depends on the nature of the termination and cannot apply where the employer is itself in repudiatory breach.
Share options; wrongful dismissal; trust and confidence; express power to terminate. The Privy Council held that the implied term of trust and confidence could not control an express contractual power to dismiss without notice, exercised to avoid payment under a share option scheme: the implied term governs the relationship while it subsists, not the steps taken to terminate it, the exclusion later labelled the Johnson v Unisys zone. The claim was put as one for wrongful dismissal on the Lavarack principle, the employees contending that had notice been given the options would have become exercisable within it; that argument fails where the contract permits lawful termination without notice, since damages assume the least burdensome mode of termination open to the employer.
Share options; post-termination discretion; rationality; the employer's post-termination exercise of discretion as to the proportion of share options payable to a dismissed employee was irrational and in breach of the implied term requiring rational exercise of contractual discretion; the discretion must be exercised rationally and not in a manner that no reasonable employer would adopt.
Share options; implied term; employee's own breach. A senior manager below board level procured false invoices from a company he controlled and accepted a bribe from a customer, then applied to exercise options under the employee share option scheme the day before his employment was terminated. Held, a term was to be implied into the scheme rules that options were not exercisable where the employee was in breach of contract to an extent that would have entitled the employer to end the employment. Peter Smith J observed, obiter, that it would be absurd if a manager of such seniority that he was obliged to disclose the breaches of fellow employees were under no obligation to disclose his own. This is the employer's principal answer to a good leaver claim where misconduct is alleged, and is met on the timing of the alleged breach relative to the effective date of termination.
Share options; sex discrimination; exercise of discretion; where an employer exercises a discretion under a share option scheme in a manner that is more favourable to a male comparator, that exercise constitutes less favourable treatment on grounds of sex; a share option scheme's discretionary mechanism does not insulate the employer from statutory discrimination claims.
Disability discrimination; reasonable adjustments; share schemes; injury to feelings. The tribunal found that the employer had failed to make reasonable adjustments in the manner in which it communicated with the claimant, and that the failure caused loss in respect of applying to join or joining share purchase plans and exercising share options, together with direct disability discrimination in the delay in admitting him to the Share Purchase Plan. The EAT further held that the 10 per cent uplift in Simmons v Castle does not apply to injury to feelings awards in the employment tribunal, on the ground that tribunal claims are not among the types of litigation addressed in the Jackson report. That second holding did not survive: the Court of Appeal held in De Souza v Vinci Construction UK Ltd [2018] ICR 433 that the uplift does apply in the tribunal, and the Presidential Guidance bands have incorporated it since the first addendum. Cite Chawla for the adjustments point only. Authority that the administration of and communication about a share scheme is itself a field in which the duty to make adjustments operates.