Employee Share Schemes: How informal promises can create legal liability
Lessons from Dixon v GlobalData Plc on share options, leaver provisions and proprietary estoppel
Employee share schemes are a valuable tool for attracting, retaining and rewarding staff. However, a recent High Court decision highlights the legal and financial risks employers face when informal assurances about share options are given outside the strict rules of a share plan.
The case of Dixon v GlobalData Plc demonstrates how employers can become legally bound by promises made during exit negotiations even where those promises conflict with the formal terms of a share scheme.
For businesses operating employee share schemes, EMI options, growth shares or other equity incentives, the judgment is an important reminder of the need for clear governance, careful documentation and specialist legal advice.
What happened in Dixon v GlobalData Plc?
Mr Dixon was employed by a subsidiary of GlobalData plc, from 2006 until the end of 2014. During his employment as a senior executive, he was granted share options under the Company’ s share option plan. Under the Plan rules, options ordinarily lapse on termination of employment unless the company exercised discretion to extend them.
In September 2014, Mr Dixon was informed that his employment would be terminated. However, following a meeting with the Company’s CEO, he agreed to stay for three months and accept restrictive covenants that would prevent him from working for a competitor for four months after his employment terminated, in exchange for assurances that he could retain and exercise his remaining share options in the future.
These arrangements were subsequently reflected in a severance agreement stating that Mr Dixon would retain his entitlement to options under the plan.
When Mr Dixon later attempted to exercise his options, the employer claimed they had lapsed on termination.
It argued that the required formal approval under the plan rules had never been obtained and that the options had therefore lapsed on termination.
Mr Dixon brought proceedings in the High Court. The court found that that the company’s discretion to extend Mr Dixon's options had not in fact been exercised as required by the Plan rules. However, it upheld a claim for ‘proprietary estoppel’.
What is ‘Proprietary Estoppel’?
‘Proprietary Estoppel’ is an equitable legal principle that prevents a party from going back on a promise or assurance where another person has relied on that promise to their detriment. To establish Propriety estoppel three elements generally need to be established:
- A clear representation or assurance was given to the claimant, in this case the employer;
- the claimant relied on that representation or assurance and
- it would be’ unconscionable’ for the employer to go back on that representation or assurance.
The court accepted the company had, through its CEO, given Mr Dixon assurances that he would retain his options on the same basis as if he remained employed.
Mr Dixon had relied on those assurances to his detriment, agreeing to remain employed and accepting the restrictive covenants. It would therefore be unconscionable for the company to now refuse to give him the benefit of those assurances.
What compensation was awarded?
The compensation due to the former employee:
- The amount due for denying him the opportunity to exercise existing share options; and
- The amount due for replacement options that were not granted to him after the original scheme had expired and because he had left employment.
On the original options, the claimant should be compensated on the same pricing basis used for other option holders who exercised their options in a ‘bulk sale process’. This ensured Mr Dixon was treated in the same way as other participants.
Compensation was also given for the replacement options Mr Dixon never received. Although these were replacement options granted in 2021 after the original 10-year share option plan had expired and when he was no longer employed, the Court found that since all other continuing plan members received replacement options, it was ‘unconscionable’ to exclude the Mr Dixon.
Why this case matters for employers
This decision is particularly relevant for:
- owner-managed businesses;
- growth companies using EMI share options;
- businesses implementing employee incentive schemes; and
- HR teams handling senior exits.
The case demonstrates the dangers of HR and senior management negotiating settlement terms with leavers without proper legal and share plan specialists’ involvement. Even when formal board approvals are missing, a sufficiently clear promise may end up being enforceable via proprietary estoppel.
What can Employers do to Mitigate the Risk?
As a result, employers should ensure that decisions about share plan leavers:
- are properly documented and communicated in a way that avoids ambiguity,
- proper governance procedures are followed, including board or remuneration committee approvals where required.
- share option records and portals are kept up to date;
- HR and management teams understand the limits of what they can promise during exit discussions.
Employers should be aware that informal assurances (e.g. in meetings or by email), even if well-intentioned, can create binding obligations if employees rely on them to their detriment.
It should also be noted that exclusion clauses often included in share schemes to exclude employment law claims for alleged loss of benefit (known as ‘Micklefield clauses’) may not provide protection here against estoppel claims.
The safest approach is to keep share option promises formal, clear, and consistent with the plan rules/ option agreements and obtain professional employment law and tax advice before entering into severance agreements with leavers, where share options or other equity awards are involved.
How Postlethwaite Solicitors can help
For over twenty years we have advised hundreds of businesses on their employee share schemes. Our team combines specialist expertise to help businesses implement incentive arrangements that are commercially effective and legally robust.
We can assist employers with:
- drafting and reviewing share option documentation;
- advising on leaver provisions and restrictive covenants;
- governance and board approval procedures;
- HMRC compliance requirements; and
- structuring employee ownership and equity participation arrangements.
If your business operates employee share schemes or is considering implementing one, taking advice early can help avoid costly disputes later. Contact our trusted experts to find out how we can help you.