When it comes to employee share options and equity ownership within a company, “good” and “bad” leaver provisions play a crucial role in defining the rights and outcomes for employees who leave their employment. At Jamieson Law, we recognise the importance of understanding good and bad lever provisions to ensure clarity, fairness, and protection for both employers and employees.
What are good leaver provisions?
Good leaver provisions are designed to reward employees who leave the company under favourable circumstances. These provisions often include scenarios such as:
- Voluntary resignation: This is most typical, when an employee resigns from their role to seek a new opportunity but is on good terms with the company. Most share options schemes allow for employees who resign, to retain a portion of their shares even when they leave.
- Redundancy or retrenchment: Employees who are made redundant or face involuntary termination due to restructuring or downsizing measures by the company often fall under good leaver provisions.
- Retirement or unable to work: Employees who retire or become unwell and so unable to work during their employment may also be considered good leavers.
Benefits of good leaver provisions:
- Retention of equity: Good leavers typically retain their vested equity or share options, allowing them to benefit from the growth and success of the company even after leaving.
- Fair treatment: These provisions ensure that employees who leave on good terms with the company are treated fairly and are not penalised for situations such as redundancy or health issues.
- Positive employer branding: Offering favourable treatment to employees exiting under good leaver provisions can enhance employer branding and reputation, promoting a supportive and fair workplace culture.
What are bad leaver provisions?
Conversely, bad leaver provisions apply when employees leave the company under less favorable circumstances, often due to actions within their control or in breach of employment terms. Examples of bad leaver scenarios include:
- Resignation and breach of employment terms: Employees who resign to join a competitor and who in doing so, breach their non compete clause will likely be categorised as bad leavers.
- Dismissal for misconduct: Termination of employment due to serious misconduct, such as breach of company policies, unethical behavior, or criminal activities, typically falls under bad leaver provisions.
- Breach of restrictive covenants: If an employee violates non-compete clauses, confidentiality agreements, or other restrictive covenants, they may be considered bad leavers.
Implications of bad leaver provisions:
- Loss of vested equity: Bad leavers often forfeit their vested equity or share options, either entirely or in part, depending on the specific terms outlined in the share option scheme or employment contract.
- Deterrent effect: These provisions serve as a deterrent against behaviors detrimental to the company’s interests, encouraging employees to adhere to ethical standards and contractual obligations.
- Legal clarity: Clearly defined bad leaver provisions provide legal clarity and mitigate disputes regarding the treatment of departing employees, ensuring consistency and fairness in decision-making.
Do you have a good understanding of your good and bad lever provisions? At Jamieson Law, we specialise in business law, providing expertise to draft, review and enforce good and bad leaver provisions tailored to your company’s needs. Whether you’re looking to implement fair and equitable share option schemes or seeking advice on handling employee departures, our team of experienced solicitors is here to help.
Contact us today to learn more about how we can support your business in navigating the complexities of employment law and equity ownership. Call us on 03308184 248 or fill in the contact form below to set up a free discover call with one of our lawyers.
