For many departing employees, the reason for leaving can have a significant impact on their entitlements under share plans. Often share plans will provide that an employee who leaves voluntarily or is dismissed by his employer will be a “bad leaver” and will not retain the benefit of options or awards after leaving. In contrast an employee who leaves involuntarily such as following a redundancy situation will be regarded as a “good leaver” and will retain the benefit of some or all of his or her options or awards after leaving.
The date of termination of employment can also affect the amount of any share plan entitlements the employee will have, as many share option schemes require employees to have retained their share options for a minimum period before they become entitled to exercise them.
Ultimately however, an employee's rights in respect of share options depends on the terms of the contract formed by the option agreement and any scheme rules; and their rights in respect of any issued share awards will depend on the terms of the company's articles of association. These documents should always be consulted to see how they will apply in the specific circumstances of the employee's departure.
In the case of a termination under a compromise agreement it is important to consider this issue where relevant and to document the basis on which the employee's share options will be treated and, where relevant, whether they are to be characterised as a "good leaver" or not.