The case concerned an employee, A, who was employed by a Danish company in 2002. In the autumn of 2005, the company's international group established an employee share option plan (ESOP) for the purpose of retaining executive employees. In that connection, A was offered to participate in the plan and thereby acquired shares of the group's holding company.
Under the agreement, the employees were indirectly owners of the shares through another company and were, according to the contract terms, obliged to sell their shares back to the company when they left the company regardless of whether the employee was dismissed by the employer or had terminated his or her employment.
A purchased 878 employee shares in December 2005 in accordance with the offer in the ESOP.
In December 2006, A was asked to consider another position in the company than the one he had had so far. However, A was shortly after dismissed without being offered another position within the company. In connection with the dismissal, A was asked to specify an account to which the down payment for the employee shares could be refunded. The buy-back clause was thus relied upon as against A as a result of his dismissal.
The employee objected to the validity of the buy-back clause. A unanimous Supreme Court dismissed the direct applicability of the Danish Share Option Act, and consequently, the validity of the buy-back clause was to be determined in accordance with the Danish Contracts Act. The question was then whether the obligation to sell back the shares was in this specific case in compliance with the rules on unreasonable agreements contained in the Danish Contracts Act.
In its assessment, the Supreme Court attached importance to the fact that the presentation of the investment plan gave the employees reason to expect a considerable return on their investment within a foreseeable future and the fact that the purpose of the ESOP was to retain the employees.
The Supreme Court then held that it must be considered unreasonable to rely on the buy-back clause as against an employee who had been dismissed by the management without it being due to employee's breach of the employment relationship. The Supreme Court attached importance to the fact that the dismissal of A was unfair, and therefore, the buy-back clause was set aside for invalidity under the Contracts Act and expressly with reference to the principles in and the motives behind the Share Option Act.
iuno's opinion
With its judgment, the Supreme Court has made it clear that a buy-back clause which is relied upon as a consequence of the dismissal of an employee may be set aside for invalidity under the Contracts Act if the dismissal of the employee is unfair and wrongful. Moreover, the decision is an example of a situation where the Share Option Act is not directly applicable, but where the principles and motives behind it apply analogously in a reasonableness test under the Contracts Act. It is also important to note that the judgment allowed the employee to continue to participate in the ESOP even though the buy-back price matched the market value.
[Supreme Court judgment of 23 June 2011, case no. 317/2009]