Legal horror stories: when things go wrong with share schemes

Are you sitting comfortably?  Then we shall begin. The title of this article is slightly disingenuous, a more accurate descriptor would be, ‘When things go wrong with dodgy employees who are members of a share scheme’.

Our client, who found themselves in this predicament, had set up a share scheme to which they had invited senior employees to join.  One of these employees was found subsequently to have forged signatures on safety certificates.  A very serious misdemeanour.

The person whose signature was ‘stolen’ was also a member of the share scheme.  He sent the ‘forger’ a communication and said that he was kicking him out of the shareholder scheme.  There was a clause in the scheme agreement stipulating that members had to behave with ‘honesty and integrity’.  The forger had clearly demonstrated dishonesty and a lack of integrity, and on those grounds, he was ‘out’.

If you read the shareholder agreement in isolation you might think this is an appropriate course of action, but what you must do is read it in context with other laws and contracts – namely employment contracts and any existing HR policies and relevant legislation.

Naturally, upon receipt of this notice the dodgy employee went on immediate sick leave.  We helped our client reach an agreement with the employee, and it looked as if the matter would be concluded.  Unfortunately, his departure was announced in an email to the rest of the firm, but before he had signed the agreement.  News of this email reached the soon-to-be ex-employee and he then sued for unfair dismissal…

This turned into a seven-month-long, acrimonious issue.  The company had to spend money on legal advice and to settle the issue with their former employee.  It was also a stressful and unpleasant time for some very good and generous people to endure.  All of this could have been avoided if the company had really thought about employee share schemes and how to do them – and ideally had approached a law firm to advise them.  Lawyers are very good at spotting the potential misery in things – let us do that to save you from living through it.

Oh, and be really careful about any communications you send when there’s an ongoing HR issue.