The Second Panel of the Superior Labour Court recently ruled on a case filed by an employee who was dismissed eight months before completing the vesting period established in the company's stock option plan. The court ruled that the dismissal was unlawful, as the company had maliciously intended to prevent the employee from purchasing stock. The employee was granted indemnification in lieu of the stock option.

Facts

According to Article 11 of the company's stock option plan, if an employment agreement was terminated before the vesting period was complete, the employee would forfeit any stock options.

The employee claimed that he had worked for the company for nearly 26 years and accrued the right to purchase 95,000 shares, of which he purchased only 15,000 shares. According to evidence presented in the suit, the employee was entitled to buy the remainder of these shares on July 29 2009. However, as he was dismissed on November 27 2008 and thus did not complete the vesting period, the company did not offer him the option to purchase the stock on termination. The employee alleged that his dismissal was unlawful, as the company had intended to prevent him from purchasing the remaining stock.

Decisions

When ruling on the employee's first appeal, the regional labour court of appeal held that the dismissal was lawful and the stock option plan should be observed, as it related to a voluntary benefit and was not regulated by labour laws. As such, the employee's claims were deemed unfounded.

The employee appealed to the Superior Labour Court, alleging that the company's stock option plan was in breach of Article 122 of the Civil Code, which provides that conditions that are subject to one party's sole discretion (ie, abusive conditions) are unlawful. Pursuant to Article 129 of the Civil Code, where one party maliciously prevents another from obtaining a certain condition or benefit, this condition should be deemed obtained.

Based on Articles 122 and 129 of the Civil Code, the Superior Labour Court overturned the regional labour court of appeal's decision and ruled that by terminating the employee eight months before the vesting period ended, the company had intended to prevent him from purchasing stock; thus, it ruled that Article 11 of the stock option plan was null and void. In its decision, the Superior Labour Court considered that the company provided no technical, economic, financial or disciplinary reasons for termination of the employment agreement, although this argument had no legal grounds.

In light of this, the Superior Labour Court held that the vesting period was completed on termination, as provided by Article 129 of the Labour Code.

The employee was granted indemnification corresponding to the difference between the value of the stock established by the stock option plan and the stock's higher market value as of the date on which the vesting period was completed. The award also considered the stock splits that would occur until the indemnification was paid.

The decision was publicly issued on December 4 2015 and will be reviewed on submission of a further appeal.

Comment

The Superior Labour Court's decision does not represent a consolidated precedent, as the other panels of the court may not reach the same conclusions. That said, if the decision is upheld by the full bench of the Superior Labour Court, it will need to be considered by companies when implementing and reviewing their stock option plans.

Even if the decision is overturned by the full bench, employees may still challenge stock option plans on the same grounds. However, in the event of a judicial dispute, the full bench's final decision could be used as a favourable precedent.

For further information of this topic please contact Domingos Antonio Fortunato Netto or Fábio José Marino Duarte at Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados by telephone (+55 11 3147 7600) or email (dfortunato@mattosfilho.com.br or fduarte@mattosfilho.com.br). The Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados website can be accessed at www.mattosfilho.com.br.

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