Important development: By its judgment of 19 March 2024 (case no. 10 AZR 67/24), the BAG (Federal Labour Court) has overturned central forfeiture clauses in employee participation programmes and expressly abandoned its earlier case law.
Employers take note! By its landmark judgment, the BAG (Federal Labour Court) has overturned central and previously quite customary forfeiture clauses in employee participation programmes: „Vested“ (already earned) virtual options may neither lapse immediately upon an employee's resignation nor lapse more quickly than they vest.
Such standard-terms clauses unreasonably disadvantage employees (Section 307 BGB (German Civil Code)). The BAG (Federal Labour Court) thereby expressly abandons its earlier case law.
This means that vested options are consideration for work performed - they form part of remuneration and are not suitable as an instrument to secure employee loyalty!
What changes in concrete terms?
The previously typical scenarios - so-called „bad leaver“ immediate forfeiture and accelerated post-termination forfeiture models - have therefore in practice been struck down by the BAG (Federal Labour Court) with respect to vested rights of the employee.
Forfeiture may now only be permissible in exceptional cases and must be proportionate - as a guiding benchmark, the principle „no shorter forfeiture period than the vesting period“ may be considered.
Consequences for employers
Action required
- Immediate review: Examine all existing ESOP/VSOP programmes for invalid forfeiture clauses
- Contract adjustments: Draft new employee participation programmes in a legally sound manner
- Risk assessment: Evaluate potential back-payment claims arising from existing programmes
- Alternative instruments: Develop new loyalty instruments that are legally sustainable
Opportunities for employees
Your rights
- Contract review: Have existing ESOP/VSOP clauses in the employment contract reviewed
- Asserting claims: Where clauses are invalid, claims can be enforced
- Avoiding total loss: A complete loss upon resignation will in most cases no longer be sustainable
- Legal advice: Professional support in the enforcement of claims
Practical implementation
As a general rule, every employer should review its current practice regarding forfeiture clauses as quickly as possible. The impact of this judgment is considerable and affects virtually all common employee participation models.
Conversely, for employees: where „vesting“ exists, it is in any event worthwhile to have existing ESOP/VSOP clauses in the employment contract reviewed - in particular, a total loss upon resignation will as a rule no longer be sustainable and can be challenged.
Next steps
If you are affected by this change in case law or have questions regarding your employee participation programmes, you should seek legal advice promptly. The implications are far-reaching and often require an individual assessment of the specific case.
