The Supreme Court Allows Wrongfully Dismissed Employees to Exercise Stock Options Even When it Goes Against the Terms of the Current Company Plan

19 October 2009

In the case of a cassation appeal for the unification of doctrine filed by the company, the Spanish Supreme Court ruled in favour of the ex-employee, rejecting the appeal and recognizing her right to exercise stock options following a wrongful dismissal (Ruling of July 15, 2009, Rº 3626/2008)

The employee had received stock options when she was still employed by the respondent company. According to the option plan for the year in question (2003), the options could be exercised only after a specific date and solely within a specified period of time. Furthermore, the beneficiary had to be an employee of the company or group.

The employee was fired, and the company acknowledged that the dismissal was wrongful, before the period stipulated for the exercising of stock options. When the employee attempted to exercise her right, the company forbade her from doing so since she was not an employee of the group. The employee then filed a lawsuit against the company before the Labour Courts and won. The company filed subsequent appeals up to the Supreme Court.

In its ruling, the Supreme Court, for “reasons of doctrinal homogeneity and coherence” follows the same line of reasoning already adopted in its ruling of February 4, 2002, according to which the termination of the agreement by a wrongful dismissal must be placed on the level with termination of employment for causes outside of the employee’s will such as death, incapacity or retirement. This is because the “company cannot unilaterally neutralize or render the valid option agreement ineffective without a contractually legal cause, and even less so without a legal cause as this would violate section 1.256 of the Civil Code”.

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