In this case, the High Court held that an employee whose share options would have lapsed under the rules of the share scheme when his employment ended was entitled to a remedy in proprietary estoppel, based on the employer's assurances that he could retain those options after termination of his employment.
Background
While proprietary estoppel claims usually concern interests in or over land, case law has established that they can extend to other proprietary rights such as rights in or over shares.
A claim based on proprietary estoppel will be established where:
- A representation or assurance was given to the claimant by the defendant
- The claimant relied on that representation or assurance to their detriment
- It is unconscionable for the defendant to go back on the representation or assurance
Facts
Mr Dixon was employed by Canadean Limited (CL), a subsidiary of GlobalData plc (GD), from 2006 until the end of 2014. During his employment, he was granted share options under GD’s 2010 employee share option plan (the Plan). Under the Plan rules, options ordinarily lapse on termination of employment unless the company exercises discretion to extend them.
In September 2014, Mr Dixon was informed that his employment with CL would be terminated. However, following a meeting with GD's CEO, Mr Pyper, he agreed to stay on until December 2014 and accept restrictive covenants that would prevent him from working for a competitor for four months after his employment terminated, in exchange for assurances that he could retain and exercise his remaining share options under the Plan in the future. Mr Dixon then entered into a settlement agreement with CL to formalise these arrangements. The agreement stated that Mr Dixon would retain his entitlement to 44,800 share options under the Plan.
Mr Dixon attempted to exercise his options in 2020 and 2022, but GD refused to permit this, stating that no extension had been approved as required by the Plan rules, so Mr Dixon's options had lapsed.
Mr Dixon brought a claim in the High Court, arguing that:
- Mr Pyper’s assurances amounted to a valid exercise of discretion under the Plan rules, so his options had not lapsed
- Alternatively, he could rely on proprietary estoppel to enforce his rights
The court rejected Mr Dixon's first argument, finding that GD's discretion to extend Mr Dixon's options had not in fact been exercised as required by the Plan rules. However, the court upheld Mr Dixon's proprietary estoppel claim. It accepted that GD had, through Mr Pyper, given Mr Dixon assurances that he would retain his options on the same basis as if he remained employed. Mr Dixon had reasonably relied on those assurances to his detriment, agreeing to remain employed by CL and accepting the restrictive covenants. It would therefore be unconscionable for GD to now refuse to give effect to those assurances.
The court also held that a provision of the Plan rules which prevented claims for "compensation for the loss of any right or benefit . . . under the Plan (including, in particular but not by way of limitation, any Options held by him which lapse by reason of his ceasing to be in Relevant Employment)" did not preclude Mr Dixon's claim. The court considered that a clause of this nature is not intended to prevent claims based on an assurance that an employee's rights would continue, or that rights had been acquired through estoppel.
What does this mean for employers?
The decision in this case is a cautionary tale for employers about the importance of formally documenting decisions relating to employee share schemes, especially when employment is terminated. Employers should ensure that any post-termination entitlements, especially those involving discretionary powers, are clearly recorded, approved and actioned by the appropriate body in accordance with the scheme rules, and communicated in a way that avoids ambiguity.
