Post-termination Rights And Share Options

Disputes about share options rarely arise while the employment relationship is healthy. They tend to surface at the point of departure, when trust is at its lowest and financial stakes are high. For senior executives, options may represent the most significant part of their reward package. For employers, the operation of an option plan can shape perceptions of fairness across the workforce and influence shareholder confidence. And when things go wrong, the consequences can be severe, both financially and reputationally.

A recent High Court decision, Dixon v GlobalData Plc, offers a stark reminder of how fragile the balance can be. It shows that a single assurance given during settlement negotiations can carry more weight than years of careful drafting. For businesses, the case illustrates the limits of contractual certainty and highlights the importance of discipline in governance and communication.

Why post-termination rights are so fraught

Most share option plans are designed to incentivise performance during employment. They tend to be clear about what happens on termination: options usually lapse when an employee leaves, subject to narrow exceptions such as ill health, redundancy, or retirement. Where flexibility is needed, the plan often gives the board discretion to permit options to remain exercisable for a defined period after departure.

This discretion is intended to be a safety valve. Boards may wish to reward loyalty in certain circumstances, or maintain goodwill with a key individual. But discretion has to be exercised properly: in accordance with the plan rules, by the right body, and usually with formal resolution or committee approval. Informal promises or casual discussions are not enough.

Overlaying this contractual framework are equitable principles that operate as a check on harsh or unfair outcomes. Doctrines such as estoppel and reliance allow courts to hold employers to promises that employees have acted upon to their detriment, even where those promises sit uneasily with the written plan. This is where the law becomes unpredictable. What looks clear in the plan may be undermined by what was said or agreed in practice.

The result is that post-termination rights are a legal fault line. They sit at the intersection of strict contract terms, discretionary power, and equitable fairness. Employers that assume the plan rules alone will carry the day may find themselves surprised when courts look beyond the document.

The Dixon story

Against this backdrop, the facts of Dixon v GlobalData are telling. Mr Dixon was granted share options in 2011. Three years later, when negotiating his departure, he received an assurance from the company's chief executive that his options would remain exercisable "as if he had remained in employment." That assurance was not simply verbal – it was recorded in his settlement agreement.

The option plan itself contained familiar provisions. On leaving, unexercised options would normally lapse, unless the board exercised its discretion to extend them. But in Dixon's case, the board never formally did so. No resolution was passed, no minutes were taken, and the discretion lay dormant.

Years later, in 2020 and again in 2022, Dixon attempted to exercise his options. The company refused, arguing that they had lapsed for want of a board decision. Litigation followed.

The court drew a sharp distinction. It accepted that the plan rules had not been complied with. The discretion had never been exercised, so specific performance of the plan was not available.

But the court was not prepared to let the company off the hook. The settlement promise, it held, was binding. Dixon had relied upon it in agreeing the terms of his exit. To deny him that benefit would be unfair.

In practical terms, the company's failure to follow its own governance procedures meant little. The informal assurance, elevated by its inclusion in the settlement agreement, carried the day.

The power of discretion

What emerges from this case is the uneasy relationship between discretion and promise. Employers often rely on discretionary powers as a source of flexibility, but flexibility only works if it is exercised with care. Without proper process, discretion can collapse under scrutiny. A board that fails to minute its decision or align it with the plan's requirements risks finding that its safety valve has no force.

At the same time, promises carry an inherent strength. Where a departing employee has been given a clear assurance, particularly one recorded in a settlement agreement, courts are inclined to protect reliance on that assurance. In Dixon's case, the promise was decisive even though the mechanics of the plan had been bypassed.

The lesson is uncomfortable for employers. It suggests that the formality of plan rules is no guarantee against liability if those rules are undermined by inconsistent assurances. The plan may provide the architecture, but it is the lived reality of negotiation and communication that determines whether the structure holds.

Managing risk

For businesses, the Dixon case is a warning against complacency. The risks lie not only in the drafting of the plan but in the way it is operated day to day, particularly at moments of transition.

One area of vulnerability is governance. Boards and remuneration committees need to treat the exercise of discretion as a formal act, not a casual decision. If the plan says discretion rests with the board, then a board resolution should be passed, reasons recorded, and minutes retained. Without that evidence, employers may struggle to prove that discretion was properly exercised.

Another danger arises during settlement negotiations. Departures are often handled in a pragmatic spirit, with parties keen to reach agreement quickly. In that environment, promises about share options can be offered as a sweetener. Yet those promises may create long-term obligations that outlive the employment relationship. Employers should ensure that any assurance given is consistent with the plan, legally vetted, and properly documented. Otherwise, they risk importing uncertainty into what should be a clean break.

Communication discipline is also critical. Different stakeholders within the business (eg, executives, HR teams, line managers, etc) may have different views on how option rights should be treated. If an employee hears one message from the boardroom and another from HR, the ground is laid for dispute. Ensuring that all communications are consistent with the plan and the company's position is essential.

Finally, the drafting of the plan itself deserves attention. Clarity around termination provisions, exercise windows, and the scope of discretion reduces the room for ambiguity. Employers may wish to limit the circumstances in which discretion can be exercised, or require that any extension of rights be confirmed in writing by the board. Such measures cannot prevent every dispute, but they help to align expectation with reality.

Lessons in governance

What Dixon underscores is not that share option plans are fatally flawed, but that they operate within a wider ecosystem of governance and fairness. Courts are willing to enforce plan rules when properly applied, but they are equally willing to look beyond the document where reliance and fairness demand it. Employers who view option plans as self-contained contracts risk being caught off guard.

The broader lesson is about corporate discipline. Just as boards must be careful in approving major transactions or financial commitments, so too must they treat the operation of incentive plans with rigour. Incentives are not peripheral. They are central to how businesses attract, retain and part ways with talent. A lack of formality in this sphere can have the same consequences as a lack of formality elsewhere: costly disputes and reputational damage.

Broken promises

The decision in Dixon v GlobalData demonstrates how a promise made in the heat of exit negotiations can override years of careful drafting. For employers, governance discipline, communication control, and consistency are essential.

At Buckles, we see these disputes as avoidable with the right structures in place. By supporting boards in designing clear plans, training managers in communication discipline, and overseeing sensitive exit negotiations, we help clients reduce the risk of Dixon-style disputes. When it comes to share options, the words spoken at the point of departure can echo long after the employment has ended. Businesses cannot afford to take them lightly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.