In a judgment of June 23 2011 the Danish Supreme Court deemed a clause regarding the sell-back of shares unreasonable and therefore invalid under Section 36 of the Contracts Act.


In 2005 a manager employed in the Danish subsidiary of an inter­national group had been offered the chance to invest in shares of the parent company. The offer was made shortly after the group had been acquired by an equity fund and the employee was invited to buy shares at the same price as paid by the equity fund.

The contractual basis stipulated that in the event of ter­mination of the employment relationship, the company that had sold the shares had the right to buy back the shares. The sell-back price would depend on:

  • the pe­riod that had passed since purchase of the shares; and
  • the reasons for termination of the individual em­ployment relationship - that is, whether the employee in question was considered a 'good leaver' or a 'bad leaver'.

Depending on the circumstances, the price could be the lower of the market price or the original purchase price.

However, when the manager's employment relationship with the Danish company was terminated, he refused to sell back the shares at purchase price. The employee subsequently took legal action against the Danish em­ployer, claiming to be entitled to keep the shares as - in his opinion - the sell-back clause contravened Section 17a of the Salaried Employees Act, the Share Option Act and Section 36 of the Contracts Act. During the lawsuit, the company had claimed that at the time of termination of the employment relationship, the market price was still equivalent to the purchase price.

The employee lost the case before the High Court.


A unanimous Supreme Court endorsed the High Court's ruling that:

  • the claim could be raised directly against the Danish employer, as the possibility to pur­chase shares was offered in the course of the employ­ment relationship;
  • the case could be brought before the Danish courts; and
  • the employee could invoke the mandatory rules set forth in Section 17a of the Salaried Employees Act, in the Share Option Act and in Section 36 of the Con­tracts Act.

However, the court ruled that the investment in shares was subject to neither Section 17a of the Salaried Employees Act nor the Share Option Act.

When assessing whether the sell-back obligation was unreasonable in the sense of Section 36 of the Contracts Act, the Supreme Court was divided and the case was decided with a dis­senting judgment. A majority of three out of five Supreme Court judges rested their case on the principles and considerations behind Section 5 of the Share Option Act, according to which an employee main­tains his or her right to share options if the employment relationship is terminated by the employer without the employee having provided grounds for such termination.

As the employee had been dismissed by the Danish company and had been awarded compensation for unfair dismissal by the High Court, the majority of the judges found that it would be unreasonable to enforce the sell-back clause at a price equivalent to the original purchase price, even if the market price of the shares was deemed to be equivalent to the purchase price. There­fore, the sell-back clause was set aside under Sec­tion 36 of the Contracts Act and the employee was entitled to keep the shares.


The judgment confirms, in compliance with existing case law, that share purchase agreements offering shares to employees at market price are subject to neither Section 17a of the Salaried Employees Act nor the Share Option Act. Furthermore, the judgment shows that it is unreasonable to enforce a sell-back clause at a price that is possibly below market price if the clause is en­forced in connection with the termination of the em­ployment relationship without the termination being due to the employee's breach of contract. This also applies if the price is equivalent to the mar­ket price.

Based on this judgment, buy-back clauses should be carefully considered when preparing employee share programmes.

For further information on this topic please contact Tina Reissmann at Plesner by telephone (+45 33 12 11 33), fax (+45 33 12 00 14) or email ([email protected]).