Legal Updates

An employee may be terminated a short time before vesting of ESOP options if not done in order to avoid vesting

July 30, 2019

An employee was terminated as part of the re-organization of a business but contended that the hearing before termination was brief and not exhaustive. In addition, the employee had ESOP options that would have reached maturity within three months had he not been terminated.
The Labor Court rejected the employee's claim. The duty of hearing is not absolute and it is not a "ceremony" to be held in order to fulfill a duty. When it comes to circumstances in which the termination of employment is unavoidable, such as dismissal due to downturn of the business or efficiency, the duty to hear is limited and even if there is a defect, the dismissal will not be canceled. As to ESOP options with a vesting period, the employee takes a risk that the employee will not be employed at the vesting date, inter alia, due to termination of employment. The mere execution of a contract that grants a conditional right to stock options, by itself, does not grant the employee the right to be employed until the options are vested, and does not give the employee the right to exercise the options in any case, even if was working for a seemingly low monthly salary in exchange for options. Termination at a time just before the date of vesting does not create a presumption that it was made in bad faith if made due to a downturn in the company or dissatisfaction with the employee's conduct, even if the employee was terminated in the month before the vesting date.