As most of us know, that clever wording which says that grants of options or restricted stock lapse when an employee leaves the relevant employment does not work in France (and commonly in other jurisdictions, moreover) to the extent that an employee who is found to be unfairly dismissed (which, flippantly, in France is of course most dismissed employees) can claim for the loss as a head of damages.
In a decision of 21 October 2009, the French Supreme Court (Cour de cassation) reiterated the previous court’s decision that share option schemes constitute a promise to sell at a future date. It also noted that various schemes limit the validity of the options, either to the presence of employees within the company, or to the type of dismissal.
Further, the Cour de cassation considered that the prohibition on financial sanctions was aimed not only at matters which affect the salary of an employee but also at matters which were likely to affect it. It therefore interpreted the term "financial sanction" widely, deciding that it included not only the loss of a financial gain but also the loss of a chance to gain, which would include a share option.
Accordingly, the French Supreme Court appears to scale new heights of employer unfriendliness in finding that loss of grants in the context of a dismissal for "serious misconduct" (which includes dismissal for such misdemeanours as theft or harassment of fellow employees) is an "illegal financial sanction".
One deduces from this that employers should not ‘play nice’ and limit loss of stock grants merely to the bad guys, but instead apply the criterion of presence in the business as a universal condition for all employees, unless otherwise determined on a case by case basis. Whilst many schemes are currently worded in this manner anyway, naturally, the next logical step for French case law will be that failure to exercise a general discretion to allow employees to keep the benefit of awards in respect of one who has been dismissed for serious misconduct is an illegal financial sanction. Paradoxically, the current state of French case law would not apply this rationale to an employee dismissed for good cause (even by way of redundancy), but not involving personal misdemeanour . "Blessed are the Bad Leavers, for they (unlike the Good Leavers) shall inherit the stock ".
