We have previously reported on Dixon v GlobalData plc, where the High Court ruled that an ex-employee could rely on an assurance in a settlement agreement that his share options would remain exercisable after termination. He was entitled to compensation even though the options had lapsed due to the employer’s failure to formally extend the exercise period. In the recent remedies hearing, the High Court has clarified how compensation for loss of these share options should be calculated.
Case Background
During exit negotiations in 2014, Mr Dixon was given verbal and written assurances from GlobalData’s CEO that he could retain and exercise his share options as if he were still employed. These assurances were also included in the settlement agreement. Based on these assurances, Mr Dixon agreed to post-termination restrictive covenants and to an extension of his departure date by four months.
Mr Dixon tried to exercise his options in 2020 and 2022 but was informed that they had lapsed on termination since the formal procedural steps necessary under the scheme rules had not been taken to extend them.
The High Court's Decision
The High Court previously held that Mr Dixon was entitled to compensation for both tranches of options based on the equitable remedy of proprietary estoppel. This doctrine has three main requirements: a clear and unequivocal assurance; substantial detriment resulting from relying on that assurance; and it must be inequitable to allow the other party to withdraw their promise. At the remedies hearing, the High Court had to decide on the method of calculating Mr Dixon’s loss.
Calculating Compensation
As regards the first tranche, Mr Dixon argued that compensation should be calculated based on the market price when his request to exercise the options was refused, which was significantly higher than when the options first became exercisable. However, the High Court held that the reference point had to be when most other employees exercised their options and sold their shares by means of a bulk sale through the employer’s broker at a fixed “strike price”. The High Court held that Mr Dixon was also entitled to compensation for his second tranche even though it had been superseded by a replacement share scheme set up due to the performance criteria under the original scheme becoming unachievable due to Covid. Again, the High Court held that compensation for these options had to be based on the bulk “strike price” achieved for other employees who exercised the replacement options.
Consistency in Assurances and Settlement Agreements
This case highlights that assurances made to departing employees must be consistent with the scheme rules as regards the conditions, timing, and basis for exercising options. These details should also be confirmed in the settlement agreement. Share option plans often include a clause preventing claims for loss of benefits due to termination, known as a Micklefield clause. However, these clauses will only apply to losses due to termination, not where ex-employees bring claims for equitable remedies due to failure to fulfil a promise that options could be retained. It is important to note that in claims based on equitable remedies such as proprietary estoppel, courts will be willing to look at substance rather than form in order to achieve fairness. Here, this meant that the High Court looked beyond the formal structure of the share option scheme to ensure that Mr Dixon was treated in a similar way to other employees.
