In Dixon v GlobalData PLC, the High Court held that a former employee was entitled to a remedy based on the legal principle of “proprietary estoppel” after relying on assurances that his share options would remain exercisable following termination of his employment. The case raises critical issues for corporate governance, particularly around the administration of employee share plans and the enforceability of informal promises.
Background
Mr Dixon was granted share options in 2011. Upon termination of his employment in 2014, the CEO assured him that the options would continue after he left his employment and would “vest in line with current conditions” – a statement that was also incorporated into his settlement agreement. Mr Dixon relied on this assurance by extending his employment and accepting onerous restrictive covenants.
However, when Mr Dixon attempted to exercise the options in 2020 and 2022, GlobalData PLC refused, stating that share options lapsed upon termination of employment unless discretion is formally exercised. The board of the group’s parent company that operated the scheme did not take steps to exercise its discretion to extend the option after Mr Dixon’s employment lapsed and took the position that the option lapsed under the terms of the scheme and therefore when his employment terminated.
The judge rejected these arguments, finding that Mr Dixon had reasonably relied on the assurances given by the company to his detriment and that it would be “unconscionable” for the company to deny the promised rights (the legal principle of proprietary estoppel). Effectively the judge found that, without the extended ability to exercise his options, Mr Dixon would not have accepted the additional three months of employment and the four months of restrictive covenants.
Key takeaways
Governance and Discretionary Powers
The case highlights the importance of formally documenting the exercise (or not) of discretionary powers under share plan rules. While many plans include discretion to preserve options post-termination, failure to record such decisions can expose companies to legal risk.
Best Practice: Boards should ensure that any discretionary decisions (especially those affecting leavers) are clearly minuted and communicated to relevant stakeholders. Boards should also retain records for the life of options – for an EMI option this could be up to 10 years and there isn’t a limit on the duration of an option without tax advantages.
Binding Nature of Assurances
Even where plan rules appear to exclude post-termination rights, assurances made by senior executives and incorporated into settlement agreements may override those rules under estoppel principles.
Risk Area: Informal or verbal assurances, particularly during exit negotiations, can create enforceable expectations. Companies should ensure all communications are consistent with plan documentation. Directors must take and retain notes from exit negotiations.
Drafting of Exclusion Clauses
The court’s rejection of the plan’s exclusion clause indicates that such provisions may not protect companies from estoppel-based claims. Clauses must be carefully drafted to address not only contractual claims but also equitable doctrines such as proprietary estoppel.
Recommendation: Review and revise exclusion clauses to explicitly address reliance-based claims and clarify the scope of protection to minimise the chance of a successful claim for reliance
Employee Relations and Reputation
Beyond legal liability, cases like Dixon can impact corporate reputation and employee trust. Ensuring transparency and fairness in share plan administration is essential for maintaining morale and avoiding disputes.
Best Practice: HR and senior managers of a company should collaborate to align messaging, manage expectations, and document all representations made to employees.
Conclusion
Dixon v GlobalData PLC serves as a cautionary tale for companies operating employee share schemes. It highlights the need for rigorous governance and processes, clear documentation, accurate record keeping and careful communication, especially during termination and settlement negotiations.
Companies should treat discretionary powers and assurances with the same formality as contractual obligations whilst ensuring that such discretion over options is within the scheme terms and HMRC’s guidance particularly for tax-advantaged schemes (which limits the use of discretion over tax-advantaged options).
If you would like to discuss your company’s share scheme, please contact Cat Carlton and Jen Short-Martin in our Corporate team or contact us on 0345 450 5558.