Equity, RSUs and Stock Options at Dismissal

Equity during a reorganization

Many employees — particularly at international and listed companies — receive part of their compensation in the form of shares, RSUs (Restricted Stock Units), stock options or other equity. Dismissal during a reorganization can create complex situations regarding these entitlements.

Your equity vesting schedule is typically disrupted upon dismissal. Most plan rules contain provisions about what happens when employment ends: a distinction between 'good leaver' and 'bad leaver', accelerated vesting or forfeiture of unvested shares. When dismissed during a reorganization — where the initiative comes from the employer — there is regularly room to negotiate more favorable terms.

The value of your equity can be substantial and therefore deserves particular attention in the settlement agreement negotiation. It is important to study the plan rules carefully and determine what entitlements you have and which terms are negotiable.

Common equity issues during reorganization

Forfeiture of unvested RSUs upon dismissal
Stock options that can no longer be exercised
Bad leaver provisions that produce disproportionate results
Uncertainty about vesting dates and schedules
Shares not yet freely tradeable on the payment date
Tax consequences of accelerated vesting
Cross-border tax issues for international employees

Types of equity and what applies upon dismissal

RSUs (Restricted Stock Units)

RSUs are commitments of shares that vest on a future date if certain conditions are met — typically being employed on the vesting date. Upon dismissal, unvested RSUs often forfeit under the plan rules. During a reorganization, it can be argued that forfeiture is unreasonable when the dismissal was initiated by the employer. In the settlement agreement, you can negotiate accelerated vesting or compensation for the loss of future RSUs.

Stock options

Stock options give you the right to purchase shares at a predetermined price. Many option plans provide that the exercise period is limited after the end of employment: you must exercise the options within a short period after the end of employment, or the right lapses. In negotiations, you can arrange for the exercise period to be extended, giving you more time to exercise at a favorable moment.

Share participation and phantom shares

Some employers offer share participation plans or phantom shares. Phantom shares are virtual shares that do not confer actual ownership but entitle you to a payment linked to the share value. Upon dismissal, the right to payment depends on the plan terms. During a reorganization, you can negotiate a payout upon departure, especially if the phantom shares were granted as part of your compensation package.

Employee Stock Purchase Plans (ESPP)

ESPPs allow you to purchase shares at a discount. Upon dismissal, your participation in the plan typically ends. Any accumulated contributions not yet converted to shares are refunded. It is important to verify whether there are outstanding purchases and how these are settled.

Good leaver and bad leaver provisions

What are leaver provisions?

Many equity plan rules distinguish between a 'good leaver' and a 'bad leaver'. The exact definition of good leaver and bad leaver follows from the applicable plan rules. Typically, a good leaver is someone who leaves the company due to circumstances beyond their control. A bad leaver is someone who departs through their own actions, such as summary dismissal or voluntary resignation.

The classification as good or bad leaver has far-reaching financial consequences. A good leaver typically retains (part of) their vested shares and may qualify for accelerated vesting. A bad leaver often loses all unvested shares and may be required to sell vested shares back at nominal value.

During a reorganization, an employee is treated as a good leaver under many plans, but this depends on the applicable plan rules. It is essential to verify this and to explicitly confirm the classification in the settlement agreement. In practice, disputes regularly arise over the good or bad leaver classification or interpret the plan rules in a way that classifies you as a bad leaver.

Can leaver provisions be challenged?

When Dutch law applies, leaver provisions are in principle enforceable but are subject to the test of reasonableness and fairness (Article 6:248 paragraph 2 of the Civil Code). If a bad leaver provision produces a disproportionate result — for example, an employee dismissed through no fault of their own losing all shares — the court may set the provision aside.

Courts assess whether the leaver provision is proportionate in relation to the circumstances. Relevant factors include: who initiated the termination, the reason for dismissal, the value of the shares, the length of service and whether the employee had a realistic alternative.

In practice, it is more effective to include the leaver issue in the settlement agreement negotiation than to start court proceedings. During reorganizations, there is regularly room to make arrangements regarding good leaver status and potentially accelerated vesting.

Tax aspects of equity upon dismissal

The tax treatment of equity upon dismissal is complex and depends on the type of equity and the moment of vesting or exercise.

RSUs: Tax is due at the moment of vesting, not at the moment of grant. The fair market value of the shares on the vesting date is taxed as employment income in Box 1. If vesting is accelerated as part of the settlement agreement, tax is due at the moment of accelerated vesting.

Stock options: The tax treatment of stock options depends on the plan structure and the moment the shares become tradeable. Tax may be due at the moment of exercise or when the shares become freely tradeable.

30% ruling: If you are an international employee with a 30% ruling, it may be advantageous to have vesting occur while the ruling is still in effect. After the ruling expires, the tax benefit of this ruling no longer applies.

Cross-border taxation: For international employees leaving the Netherlands after dismissal, specific rules apply for the allocation of taxing rights over equity income. If you worked in multiple countries during the vesting period, taxing rights are often allocated based on the work period per country and applicable tax treaties. This is a complex tax matter that requires specialized advice.

Equity and the transition payment

Equity income is not included by default in the transition payment calculation. The transition payment is calculated on the basis of gross monthly salary, including fixed salary components and the average of variable remuneration over three years. If the court determines that the employer acted in a seriously culpable manner, the loss of equity may be factored into the award of a fair compensation (billijke vergoeding).

Equity in the settlement agreement

It is essential that equity issues are explicitly addressed in the settlement agreement. The following points must be covered:

Confirmation of your good leaver status
Accelerated vesting of (part of) unvested RSUs
Extension of the exercise period for stock options
Compensation for loss of future equity
Timing of vesting in relation to the 30% ruling
Exclusion of equity entitlements from the final discharge

The value of your equity can represent a substantial part of your total compensation. Allowing these entitlements to lapse without negotiation can result in significant financial loss. ReorgLegal analyzes your plan rules and includes the equity issue in the negotiation of your departure arrangement.