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The Question

I joined my company as a director at its founding about a decade ago when we had only a handful of employees. Early on, the owners initiated an employee stock option plan and I was awarded 10,000 share options at five cents a share. A number of years later, the company underwent a management buyout. The new owners have informed the holders of the stock options (me and several others) that the stock option plan has been terminated and we can no longer vest the shares. I estimate that the value of the shares would be quite substantial for me if the stocks still existed. What are my options to recover anything at this point? If I attempt to sue, I believe it may jeopardize my employment.

The First Answer

Pamela Connolly, Lawyer, Ukrainetz Workplace Law Group, Vernon, B.C.

Employers may award stock options to employees as an incentive and to increase employee engagement through having an ownership stake in the company. Typically, stock options vest periodically and employees may choose to “exercise” the vested shares by purchasing them at the set (“strike”) price, which may be less than their current value. It sounds like you did not exercise your vested options, although it is unclear if all awarded options have vested.

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Start by reviewing the stock option plan, which should include terms regarding vesting and exercising your options, as well as terminating the plan. Often, when plans are being terminated, the plan requires that employees receive notice that initiates a final period to exercise options. In addition, sometimes plans will include a condition that unvested options automatically vest when there are significant changes to the company, such as a merger or acquisition.

In your case, if the timelines for exercising the options have expired, you likely have little recourse. However, if you were not given proper notice, or the plan is silent about termination, you could take the position that the options do not expire upon termination of the plan or the plan was not properly terminated. Pointing out these issues to your employer and asking for an opportunity to purchase the shares could help to resolve the situation. Ultimately, though, litigation may be the only option. I recommend speaking to a lawyer about the strength of your legal position and also to a financial adviser to determine if purchasing these shares is a sound investment.

The Second Answer

Samantha Lamb, partner, Jewitt McLuckie & Associates, Ottawa

The answer depends on what is written in your employment contract and stock option plan. Many contracts/plans now explicitly provide employers with the ability to cancel the shares at any time before they vest, leaving you out of luck. If the documents are vague or non-existent, you may have grounds to sue, and the next question is whether to sue your former employer, who offered the shares, or the new employer who has cancelled them. This depends in part on what happened at the management buyout and whether you signed a new contract or agreement.

Depending on the terms of the buyout, you might be able to sue your former employer since they were the ones who gave you the shares, and they might owe you for the value of the shares at the time they sold the company and severed their employment relationship with you. If the buyout happened around two years ago, be aware that you may have to act quickly because there is a two-year time limit on bringing a lawsuit.

Suing your current employer might be the right option if they took over all existing employment contracts and the share plan, but doing so might jeopardize your employment. Your employer’s reaction to being sued could be to terminate you immediately without cause. Since everything turns on the wording of any employment contracts and the stock option plan, the first step is to have a lawyer review those documents.

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