Stock Options on TerminationNorman Grosman Monday, August 17, 2009 |
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Before I was terminated from my employment, I had been provided with stock options by my former employer. What are the rules that govern my options on termination? Should I continue to vest my options during my severance? Answer The question you pose is a tricky one to answer. The first resource to access, in terms of answering the question, is the text of the plan itself. Most stock option plans contemplate what will happen in the event of termination. Commonly, they provide that vesting ceases on termination of employment and the former employee has a period of time, often 30, 60 or 90 days, within which to exercise any shares which were vested at termination. The issue can become more complicated, however, depending upon the language of the plan itself. For example, courts have found some plans to be sufficiently ambiguous in their terms to permit vesting to continue through a lawful notice (or severance) period. This has occurred in circumstances where the language of the plan provides that vesting ends when the individual "ceases to be an employee". Courts have interpreted this language to mean when the employee lawfullyceases to be an employee, or at the end of a fair and lawful notice period. Option plans that have more precise wording, however, have been interpreted by the courts to be contracts strictly speaking outside the terms of the employment contract and have been interpreted more strictly, in accordance with the terms under which the option was provided to the employee. In such circumstances, a properly worded stock option plan can provide that vesting ends, once and for all, on the last actual day of employment or services rendered. |
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