Bill on changes to the Danish Stock Options Act sent in consultation

By Soeren Narv Pedersen, Mia Boesen


The Danish Ministry of Employment has recently introduced and sent a bill in consultation which will change the rules in the Danish Stock Options Act, entailing greater freedom of contract in relation to the terms for a stock option program for employees.

The bill is the result of a political agreement on business and entrepreneur initiatives between the Danish government, the Danish People's Party and the Danish Social Liberal Party from 12 November 2017.

The bill entails, among other things, that the two main sections of the Act, Section 4 and Section 5 is removed and replaced by a new Section 4.

The present Sections 4 and 5 distinguish between whether an employee is a so called "bad leaver" or "good leaver". If the employee terminates the employment or is dismissed/summarily dismissed due to the employee's breach of contract, the employee is a bad leaver. If, however, the employee is dismissed by the employer and this is not due to the employee's breach of contract, or if the employee resigns due to pensioning, the employee is a good leaver.

The distinction between these two is central in relation to the employee's right to keep stock options with respect to a termination. Thus, a good leaver is entitled to keep the stock granted options which have not yet been exercised by the employee plus a proportional part of future grantings, cf. Section 4. In contrast, a bad leaver will lose the right to exercise already granted stock options which have not yet been exercised, cf. Section 4, unless otherwise stated specifically in the agreement.

With the bill it is proposed that these limitations lapse, meaning that the employer and the employee can agree freely what the terms for the stock options should be in relation to a termination. The employer can therefore – in contrast to the current rules – establish that granted but not exercised stock options will lapse regardless of the reason for the termination, i.e. regardless of whether the employee is a good leaver pursuant to the current rules. Especially this term will be a significant change in comparison with the state of law today.

In addition, the bill proposes that the employer should be able to repurchase shares at market price.

The bill's Section 4 states:

"The employee and the employer can agree that the employer – in relation to the employee's resignation – can repurchase shares which have been purchased in accordance with an arrangement or agreement covered by section 1 at market price".

However, it is not clear how this Section should be interpreted in relation to shares which have restrictions on the transferability and shares for which the market price cannot be determined with certainty, e.g. unquoted shares. Thus, there is a risk that this Section will create uncertainties if its interpretation is not made clear.

The deadline for the hearing is 27 August 2018 and the final bill is expected to be submitted in the autumn of 2018. The bill proposes that the new rules come into force on 1 January 2019.

The changes will only have effect on new stock option programs, i.e. programs entered into after 1 January 2019. Existing programs will therefor still be covered by the current rules in the stock option act.

Bird & Bird's comments:

  • The bill entails a significant change to the current rules and will put the employers in a very favorable position compared to current rules as employees will risk losing their right to stock options regardless on the grounds for termination.
  • We also expect that especially the unions will criticize the bill sent in consultation hearing.
  • Furthermore, the possibility to agree to a repurchase will put the employer in a better position than today although the bill contains uncertainties in relation to such a repurchase. 

Bird & Bird will monitor the bill and revert when there is news.