New judgment on share investment programme from the Supreme Court of Denmark

Date 22 jul. 2011


On June 23 2011, The Supreme Court of Denmark pronounced a judgment and thereby took a stand on buy-back duty in a share investment programme in connection with the termination of an employee.

The case concerned a number of agreements concluded as part of a Senior Management Equity Investment share investment programme. According to the share investment programme, the investors were obliged to sell back their shares to the original seller in case of termination of their employment. This applied regardless of whether the employee gave notice himself or if he was terminated by the company. In the share buy-back, employees could not always require the market value, in that the employees, in many cases, including in case of termination within the first three years, wholly or partly had to settle with the lowest value of the market value and the original price, respectively. The company alone could decide if it wanted to reacquire the shares.

The employee in question, who was employed in a leading position in the company, was offered to participate in the share investment program in 2005 whereby he acquired shares in the company’s parent. The employee was terminated in December 2006, and he was ordered to sell back the shares to the company at market value.


The employee maintained that his rights according to the share investment program had to be put on the same footing as share options and were covered by the Share Option Act. At the allotment of the shares, the employee did not become an actual shareholder as the ownership was placed with an agent in Luxembourg who was in charge of exercising all continuing rights that were tied to the shares, including voting rights and subscription rights by issuance of supplementary shares. Thus, the employee only had the possibility to buy shares at a later time. The employee argued that the buy-back duty was inconsistent with mandatory provisions in the Share Option Act. The employee also argued that the assigned rights were within the scope of the Danish Salaried Employees Act, Section 17(a), because the title to the shares at no time was transferred to the employee as the employee’s rights only consisted of receiving a sum of money when reacquiring the shares from the agent. Finally, the employee argued that the conditions concerning his duty to give up his rights was in violation of the Danish Contracts Act, Section 36, as it was not a voluntary arrangement, and that he had no influence on the conditions for the arrangement, including the condition on giving up the rights at resignation, which was one-sidedly determined in the interest of the company.


The Supreme Court found that the employee could claim the mandatory provisions of the Salaried Employees Act, Section 17(a), the Share Option Act and the Contracts Act, Section 36, but that the share investment was neither covered by the Salaried Employees Act, Section 17(a) nor by the Share Option Act.


The Supreme Court emphasised that the access to the special investment program was achieved by virtue of the employment. The Court further emphasised that the employees, by the presentation of the share investment program, were promised that they had an opportunity to gain a considerable profit within a foreseeable number of years and that it was declared by the group of companies that the arrangement primarily was substantiated in a wish to keep the employees. On this background, the Court found that it would be unreasonable to claim the buy-back duty in cases where the employment was terminated by the company without it having to do with the employee’s breach of contract. The court referred to the principles and considerations behind the Share Options Act.


The employee was hereinafter entitled to keep his right to 878 shares in the company, as if the employee was still employed in the company.


The judgment is primarily considered to be of importance to arrangements that are not directly covered by the Share Options Act. In arrangements covered by the Act, the employees will have the right to keep their share options as a matter of course, as if still employed, in cases where the employee is terminated by the company without being in violation of the employment contract (good-leaver situations). However, the judgment has not taken a stand on disregard of arrangements in “bad-leaver” situations outside the scope of the Share Options Act, where the employee gives notice himself or is terminated by the company due to breach of contract. It must be expected that buy-back arrangements can be obtained in these cases, in spite of the judgment.


The judgment has opened up the possibility for buy-back arrangements to be set aside in accordance with the Contracts Act, Section 36, concerning unfair contract conditions in situations where the employee leaves the company as “good leaver”.

If you have any questions or require additional information on the judgment, please contact Partner Dan Moalem ( or Junior Associate Pinar Göcken (

The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.