High Court Decision Highlights Impact Of Settlement Agreement On Share Option Rights

In Dixon v GlobalData PLC [2025] EWHC 2156 (Ch), the High Court held that an employee whose share options had been treated as lapsed under their terms upon the termination of the employee's employment was able to enforce a contractual commitment made by the employer outside of the scheme that the options would not lapse.

Despite the employer's CEO giving the employee an assurance that discretion would be exercised to ensure the option would not lapse on the employee's termination of employment, which was reflected in the employee's settlement agreement, the board of directors of the group's parent company that operated the scheme did not in fact take any steps to exercise its discretion to extend the option, and the parent company subsequently took the position that the option had lapsed under the terms of the scheme.

The High Court, however, held that the employee was entitled to rely on the promise made to them in the settlement agreement under the doctrine of proprietary estoppel, and as such would be entitled to a remedy which would be determined by the court at a future hearing.

In making its decision, the High Court also determined that the parent company was not able to rely on a clause in the share scheme that prevented claims for "compensation for the loss of any right or benefit . . . under the Plan (including, in particular but not by way of limitation, any Options held by him which lapse by reason of his ceasing to be in Relevant Employment)" – a clause typically referred to as a "Micklefield clause" – on the basis that this clause was not meant to prevent claims based on assurances that an employee's rights would continue, or claims that rights had been acquired through estoppel.

What are the takeaways?

The decision is unlikely to come as a surprise to share plan practitioners or companies, and few would argue it was the wrong outcome.

However, the decision does highlight the need for companies to ensure:

1. that those responsible for negotiating settlement agreements liaise with the body responsible for making decisions under the share scheme ("the Governing Body") to confirm that it will exercise (or refrain from exercising, as the case may be) its discretion as proposed, in advance of making any commitments that run contrary to the default terms of the scheme; and
2. that the relevant Governing Body formally makes the decision required to give effect to such commitment, and clearly documents the decision process and outcome.

In practice, the relevant Governing Body will need to go through the process of considering whether it is appropriate to exercise (or not exercise) its discretion at the time it gives permission to agree the option treatment with the employee.

The stakes are higher for tax-advantaged EMI options and CSOP options; options that have lapsed under their terms cannot be revived and retain their tax-advantaged status. This means that any discretion to extend these options or permit them to be exercised due to a termination of employment must be made before they lapse under the terms of the scheme.

Any exercise of discretion over tax-advantaged options must additionally be within the scope of the scheme terms and HMRC's guidance, which sets limitations on the use of discretion in such schemes. Specialist advice is recommended for companies that are considering exercising any discretions in relation to tax-advantaged options.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.