In brief:
- A recent High Court case highlights the importance of seeking professional advice when dealing with share plan leavers, to ensure that:
- Decisions about the treatment of leavers’ share awards are properly documented and accurately communicated; and
- Those people negotiating with a leaver about the treatment of any share awards are authorised to give full effect to any assurances made;
- Micklefield exclusion clauses that seek to contractually limit an employee's ability to claim for loss will not protect employers from proprietary estoppel claims; and
- Even when share plan documentation terms and lack of exercise of Board discretion confirms that a share option has lapsed, an ex-employee may yet be successful in a claim for loss if they've acted in reliance, to their detriment, on promises made to them by representatives of the share issuer entity.
The recent High Court decision in Dixon v GlobalData PLC [2025] EWHC 2156 (Ch) (26 August 2025) serves as a stark reminder to employers of the importance of meticulous share plan administration and accurate employee communications.
The judgment, handed down on 26 August 2025, demonstrates how informal assurances about share options can create binding legal obligations.
The facts:
Mr Dixon worked for his employer from January 2006 to December 2014 and was granted share options in the parent company in January 2011. He claimed his options were extended beyond the termination of his employment. Dixon's employment was initially due to be terminated in September 2014. However, the CEO of the parent company assured Dixon he could retain his share options after leaving, and that assurance was made in the context of an extension of Dixon's employment to the end of December 2014. As part of this arrangement, Dixon also agreed to be bound by restrictive covenants for a period after termination.
In a letter to Mr Dixon in September 2014, the CEO confirmed that the outstanding share options would be included in Mr Dixon's compromise settlement and would vest "in line with current conditions". This was followed by a Settlement Agreement in October 2014, which provided that Mr Dixon would retain his entitlement to share options after termination.
Plan rules vs informal assurances
The share option plan rules contained detailed provisions about option exercise, including rule 6.3 (options lapse when employment ends), rule 7.1 (discretionary extension power), and rule 14 (exclusion clauses). The court found that the CEO was not authorised by the Board to exercise the rule 7.1 power in favour of Mr Dixon, but had made a representation upon which assurance Mr Dixon had placed reliance.
Proprietary estoppel
As the court found that there had been no exercise of discretion to extend the life of the option, Mr Dixon then pursued an alternative argument using the doctrine of proprietary estoppel. The court referenced the authoritative formulation from Lord Scott in Thorner v Major, identifying three main elements:
- a clear and unequivocal representation made, or assurance given, to the claimant;
- reasonable reliance by the claimant on the representation or assurance; and
- some substantive detriment incurred by the claimant as a consequence of that reliance.
The court applied that test, focusing on what Mr Dixon reasonably understood the CEO to mean through his words and acts. The court found that Mr Dixon's understanding, i.e. that he would continue to be entitled to exercise options after employment cessation as if he had continued in employment, was reasonable.
The court found the primary detriment suffered was entry into the Settlement Agreement, being required to work until the end of 2014, and the restrictive covenants.
The court concluded that the defendant parent company had acted unconscionably in not giving effect to the CEO's assurance.
Why Micklefield clause protection fails
Many employers rely on exclusion clauses (often called "Micklefield clauses") to protect against share option claims by ex-employees. However, the Dixon case demonstrates that such clauses have limitations.
The court found that the plan included a rule which prevented employees whose employment had ended from seeking remedies for loss of rights under the plan, including for lapsed options, where the loss flows from cessation of their employment.
However, the court held that Mr Dixon was not pursuing a claim for lost options due to employment cessation, but was instead seeking equitable relief for denial of promised rights, based on detrimental reliance. The court concluded that the "Micklefield clause" rule in the plan was not intended to protect the employer in this context.
This analysis highlights that Micklefield clauses are intended to protect against claims for loss flowing from employment termination, but not against proprietary estoppel claims based on specific assurances that a participant's rights under the plan would continue.
Tax considerations
The tax treatment of share option compensation claims on termination adds complexity. In Essack v HMRC, the First-tier Tribunal concluded that compensation for share option rights would be taxable as earnings (PAYE and NIC) as a termination payment, conflicting with established principles and HMRC's own guidance that payments for assets should not fall within those charging provisions. It is notable however that, in Essack, the employee brought a claim for the employer's failure to grant a promised share option. It is therefore possible to distinguish the position in Essack, a claim for not granting a promised option (no underlying asset was therefore held by the employee), from the position for Mr Dixon, where an option had been granted (and therefore an asset was held).
Practical implications for employers
These decisions carry several important lessons that employers and share plan administrators would do well to heed:
Accurate record keeping:
Employers must ensure decisions about post-employment option rights correctly follow the terms of the relevant plan and award agreement and also formal governance procedures regarding exercise of discretion. Decisions must also be accurately documented and recorded. A data input error on a share plan portal, inadvertently extending an exercise period, combined with a communication that misrepresents a lapse date as being later than the award documents prescribe, raises the risk of claims.
Senior management communications create legal risk:
Even though the court held that the employer had not exercised discretion to extend the exercise period for Mr Dixon's options, the CEO had given an assurance that reasonably led Mr Dixon to rely on it. For a proprietary estoppel claim to succeed, the representation or assurance must be sufficiently clear and unequivocal, the claimant's reliance must be reasonable, and the detriment suffered needs to be substantial enough to justify equitable intervention.
Settlement negotiations require specialist input:
The case demonstrates the potential danger of HR and senior management negotiating settlement terms without proper legal and share plan specialist involvement.
Exclusion clauses have limits:
Standard Micklefield clauses may not protect against estoppel claims based on specific assurances that plan rights would continue.
Tax treatment requires careful consideration:
The Essack decision highlights the importance of obtaining specialist tax advice when structuring termination arrangements involving share options.
Remedy and what comes next?
The court noted that remedy should be determined as a consequential matter, with the burden on the defendant to prove that specific enforcement would be disproportionate. The outcome (yet to be published) should provide further guidance on quantifying compensation damages in share option disputes.
For employers, these cases underscore that share plan administration is not to be undertaken lightly, and even misguided communications may create binding obligations that lead to liability. To minimise your risk, ensure robust governance procedures and obtain specialist advice for termination arrangements involving share options.