Danish Supreme Court Ruling on the Transition to the New Danish Stock Option Act

Employee A (“A”) joined the company in 2016 and received Restricted Stock Units (“RSUs”) upon joining. Over the following years, A was granted additional stock options under the company's equity incentive schemes. Despite receiving further stock options in 2019 and 2020, A’s employment was terminated in 2021 due to his refusal to accept a significant change in working hours. As a result, 76 of A’s stock options remained unvested and lapsed in accordance with the terms of the stock option scheme.

Employee B (“B”) joined the company in 2016 and also received RSUs upon joining. In 2019, B was granted additional RSUs under the company's 2010 equity incentive scheme, followed by a further grant of stock options in 2020 under the 2019 equity incentive scheme. B’s employment was terminated in 2021 due to his refusal to accept a significant change in working hours. At the time of his departure, 33 of B’s stock options and 10 RSUs remained unvested and lapsed in accordance with the terms of the stock option scheme.

The Danish Supreme Court was asked to determine whether the grants of RSUs and stock options were covered by the expanded contractual freedom introduced by the amendment to the Danish Stock Option Act on 1 January 2019 or whether those grants were subject to the legislation in effect prior to 1 January 2019 due to the schemes being established before that date.

The Danish Supreme Court found that neither the 2010 scheme nor the 2019 scheme fell within the scope of the Danish Stock Option Act, as the schemes did not contain a binding obligation for the company to grant options to employees.

Instead, the Supreme Court held that the binding obligation arose in the grant agreements issued after 1 January 2019. As such, any reference to the 2010 scheme in the January 2019 grant agreement was deemed irrelevant, as the grant agreement itself was established after the amendment to the Danish Stock Option Act took effect.

Consequently, any differences between the 2010 scheme and the 2019 scheme were also irrelevant. The Supreme Court ruled that the grants awarded to A and B were subject to contractual freedom under the amended Danish Stock Option Act, allowing the company to uphold the agreed terms in the event of an employee’s departure.

The company was therefore entitled to let granted but unexercised stock options and RSUs lapse upon the employees' departure.

This applied regardless of the fact that the departures were due to operationally justified job changes, meaning that A and B neither resigned nor breached their employment agreements.

In conclusion, the Danish Supreme Court acquitted the company of A and B’s claims for the value of unvested RSUs and stock options. However, the Court ordered the company to pay DKK 2,500 to each party for failing to provide a written statement detailing their granted rights, including a reference to the applicable assessment principles under the Employment Certificate Act (Ansættelsesbevisloven).

This ruling by the Danish Supreme Court has now clarified and resolved the legal uncertainty that has existed since 1 January 2019 regarding the applicability of the new Danish Stock Option Act to stock options granted to employees after 1 January 2019 under schemes established before the implementation date.

For those interested in exploring this topic further, we recommend the book The Stock Option Act – Employment Law Regulation of Equity Compensation (Aktieoptionsloven – ansættelsesretlig regulering af aktieaflønning), co-authored by our partner Poul Guo. The authors reached the same conclusion in 2022 as the Court’s decision—namely, that the decisive factor must be the timing of the employer’s binding commitment to the employees rather than the date on which the stock option scheme was established.

This ruling has significant implications for both employers and employees:

1. For employers: It underscores the importance of clearly defining the terms of equity incentive schemes in light of the expanded contractual freedom.
2. For employees: It highlights the need to thoroughly understand the conditions attached to their RSUs and stock options.

If you have any questions or require further information regarding any of the above, please do not hesitate to contact us.