Settlement Agreements on Share Option Rights: What You Need to Know

A settlement agreement on share option rights can be just as important as the cash payment in an exit package. The High Court decision in Dixon v GlobalData PLC shows that promises made during exit negotiations can carry real legal weight. However, employees should never assume a settlement agreement automatically overrides share plan rules. The wording, the scheme documents, the decision-maker’s authority and the timing all matter.

When employment ends, most people focus on compensation, notice pay and references. Yet for some employees, share options may be worth as much as, or more than, the termination payment itself. That is why a settlement agreement on share option rights deserves careful attention.

This area is not governed by employment law alone. It may also involve contract law, equitable principles, company share scheme rules and tax law. A settlement agreement can record what the parties intend, but it does not necessarily displace the underlying plan rules or the tax treatment that applies to a particular option. For a settlement agreement to validly waive certain statutory employment claims in England and Wales, the statutory conditions must also be met, including independent legal advice under section 203 of the Employment Rights Act 1996.

A recent High Court decision on Dixon v GlobalData PLC is a useful warning. The Court found that the employee’s options had lapsed under the share plan rules because the required discretion had not been formally exercised by the proper body. Even so, the employee was still entitled to pursue a remedy based on “proprietary estoppel” because he had relied on a clear assurance given during the exit process.

What is a Settlement Agreement on Share Option Rights?

A settlement agreement on share option rights is a settlement agreement that deals with what happens to an employee’s share-related benefits when employment ends.

This may include:

• Unapproved share options;
• EMI (Enterprise Management Incentive) options; and
• CSOP (Company Share Option Plan) options;
• Vested or unvested share awards;
• Deferred bonus shares; or
• Other rights under an incentive plan.

In simple terms, it should answer questions such as:

• Do the options lapse on termination?
• Can the employee keep them?
• Can they still be exercised after employment ends?
• Will performance or vesting conditions continue?
• Has the correct board or committee approved any exception to the default rules?

These questions matter because the settlement agreement may not be the whole story. In many cases, the share plan rules set out what happens on termination, who can exercise any discretion, and whether a “good leaver” exception can apply. If those rules are not followed properly, a dispute can arise later. That was a central issue in Dixon v GlobalData PLC.

Why is the Issue of Share Options in Settlement Agreements Important?

It matters because share options are often overlooked during exit negotiations.

An employee may accept a package believing that their options will survive, only to discover later that the plan rules said the options lapsed automatically on termination. Equally, an employer may think a broad assurance in a settlement agreement is enough, when the scheme actually requires a formal board or committee decision first.

That is broadly what happened in Dixon. The employee said he had been assured that he could retain and exercise his options after his employment ended. The High Court accepted that a clear assurance had been given. However, it also found that there was no sufficient evidence that the relevant discretion under the scheme had been validly exercised by the proper decision-maker. In strict contractual terms, the options had lapsed. The employee nevertheless succeeded on estoppel grounds.

For employees, the lesson is straightforward: Do not assume a reassuring sentence in a settlement agreement automatically secures your option rights. For employers, the lesson is just as clear: Do not promise option treatment unless the correct body under the scheme has properly approved it.

What happened in Dixon v GlobalData PLC?

In Dixon v GlobalData PLC, the Claimant had share options under the Employer’s plan. During discussions around his departure, he was assured that he would be able to keep and exercise those options after termination. That assurance was reflected in the settlement arrangement.

The difficulty was that the plan rules required a formal exercise of discretion by the relevant governing body. The Court found there was no adequate contemporaneous evidence showing that this had actually happened. The employee therefore failed on the argument that the options had been preserved in accordance with the scheme itself.

However, the Court went on to hold that the employee could rely on “proprietary estoppel”. In plain English, that means the law may stop a party from going back on a sufficiently clear promise where the other person reasonably relied on it to their detriment, and it would be unfair to allow the promise to be withdrawn. The issue of remedy was left to a later hearing.

The Court also held that the plan’s exclusion wording, often described as a “Micklefield clause“, did not defeat this kind of estoppel claim. In simple terms, a “Micklefield clause” is a standard clause used to exclude compensation for the loss of share rights upon termination. On the Court’s approach, that clause was not intended to prevent claims based on assurances that rights would continue, or claims that rights had arisen through estoppel.

What does Dixon v GlobalData PLC mean for Settlement Agreements on Share Option Rights?

The main point is that a settlement agreement on share options rights must be read together with:

• The share plan rules;
• The individual grant documents;
• Any board or committee approval; and
• The tax position of the option in question.

A settlement agreement may contain an important promise. But if the plan requires a particular decision-maker to approve an exception, the Court may still ask whether that step actually happened. In Dixon v GlobalData PLC, it had not. The employee still had a claim, but that depended on the facts and on equitable principles. It should not be treated as a guaranteed fallback in every case.

The safer approach is to ensure that all the documents line up. The settlement agreement should match the scheme rules, and the correct governing body should formally approve any departure from the default treatment before the option lapses.

Do Share Plan Rules Still Matter if the Settlement Agreement Says you Keep your Options?

Yes. In most cases, they do.

That is one of the clearest messages from Dixon. Even where the settlement arrangements recorded that the employee would retain his options, the Court still examined whether the Company had properly exercised the relevant discretion under the scheme. It found that the required formal step had not been proved.

So, a clause in a settlement agreement may be highly important, but it may not be enough on its own if the plan requires:

• Board approval;
• Committee approval;
• Notice within a set period;
• Specific “good leaver” treatment; or
• Compliance with particular tax-advantaged scheme rules.

That is why employees should ask to see the paperwork behind the promise, not just the promise itself.

What Should Employees Check Before Signing a Settlement Agreement on Share Option Rights?

Employees offered a settlement agreement on share options rights should check:

• The exact name of the share plan or option scheme;
• Whether the options are vested, unvested, exercisable or conditional;
• What the plan says happens on resignation, dismissal, redundancy or agreed exit;
• Who has the authority to exercise discretion under the scheme;
• Whether that discretion has already been exercised formally;
• Whether the settlement agreement wording matches the scheme documents; and
• Whether there are tax consequences, especially for Enterprise Management Incentives (EMI) or Company Share Option Plans (CSOP).

Employees should also ask for copies of the relevant plan rules, grant documents and any board or committee resolution supporting the agreed treatment. Where the agreement is intended to waive statutory employment claims, the employee should also make sure the settlement agreement satisfies the statutory conditions for validity, including advice from an independent adviser.

Why are EMI and CSOP Options Higher Risk?

The stakes can be even higher for tax-advantaged options such as EMI and CSOP options.

HMRC’s current EMI guidance states that certain changes may be made to an existing EMI option, including some extensions or amendments, only where the option had not already lapsed, expired or been exercised at the time of the variation. HMRC also continues to publish current CSOP guidance and statutory rules, which require schemes to specify the circumstances in which options lapse or are cancelled.

That means timing is critical. Once a tax-advantaged option has already lapsed, the ability to preserve the original tax-favoured treatment may be severely limited. That does not mean every commercial solution is impossible, but it does mean that the position becomes more complex and specialist tax advice is strongly recommended.

There have also been recent changes to EMI law. The government’s Budget 2025 tax legislation overview states that, from 6 April 2026, the time limit for exercising an EMI option after grant is increased from ten years to fifteen years. That change does not alter the need to deal properly with lapse and termination rules, but it is a reminder that tax-advantaged option rules do change and should be checked carefully.

How do Settlement Agreements and Share Options Work Together?

A settlement agreement is a legal contract used to settle certain employment claims, and share options are usually governed by their own separate contracts and tax rules.

In England and Wales, the law protects employees from simply signing away their legal rights by accident. For a settlement agreement to be valid, it must follow specific rules under the Employment Rights Act 1996.

Most importantly, the employee must receive advice from an independent legal adviser, and the agreement must clearly state exactly which claims are being settled. Because these two areas of law overlap, you need to ensure your settlement agreement and your share option rules are in sync.

By contrast, whether an option lapses, can be exercised after termination, or can benefit from a “good leaver” discretion will usually depend on:

• The terms of the share scheme;
• The grant documents;
• Any lawful discretion reserved to the company;
• Tax legislation and HMRC guidance for tax-advantaged plans; and
• General legal principles such as contract interpretation and estoppel.

That is why this topic sits across more than one area of law.

Common Mistakes in Settlement Agreements on Share Option Rights

• Assuming the Settlement Agreement Overrides the Plan: It may not. The Court may still look at the share scheme documents and ask whether the correct body exercised the relevant discretion. Dixon v GlobalData PLC is a clear reminder of that.

• Using Vague Wording: A phrase such as “you will retain your options” may sound helpful, but it can create a dispute risk if it does not explain exercise dates, lapse dates, performance conditions and tax consequences.

• Failing to Obtain Formal Approval: If the board or remuneration committee must approve the treatment, that approval should usually be obtained and recorded before the agreement is signed and before any lapse takes effect.

• Ignoring Tax: EMI and CSOP options may lose their expected tax treatment if they are not handled properly or in time.

• Focusing Only on Cash Compensation: Employees sometimes spend most of the negotiation on the termination payment and too little on the equity terms. In some cases, the option rights may be commercially significant. That is not a legal rule, but it is a practical lesson that follows naturally from cases such as Dixon.

The practical message is simple. Before signing, get the documents, read the scheme rules and make sure the settlement wording matches the legal mechanism that is meant to preserve the options.

What Should Employers Do?

Employers should ensure that the people negotiating the exit package speak to the body that actually controls the share scheme before making any promise about option treatment.

In practice, employers should:

• Confirm whether discretion exists under the plan;
• Identify who can exercise that discretion;
• Obtain the decision formally and in writing;
• Ensure the settlement agreement mirrors the approved decision; and
• Take specialist tax advice where EMI or CSOP options are involved.

This is particularly important because a casual assurance given during negotiations may later be relied on in Court, even if the technical scheme steps were missed. Dixon underlines that risk.

FAQs

Can a settlement agreement protect my share options after I leave?

Sometimes, yes. But it depends on the wording of the settlement agreement, the share plan rules, the authority of the person making the promise and whether the correct formal steps have been taken. Dixon shows that assurances can matter, but it is much safer if the scheme paperwork is in order.

Does a settlement agreement automatically override a share option plan?

No. In many cases, the share option plan still matters. The court in Dixon looked directly at whether the company had validly exercised its discretion under the plan and found that it had not.

What is “proprietary estoppel” in simple terms?

It is a legal doctrine that can prevent a party from going back on a sufficiently clear promise where another person reasonably relied on it to their detriment, and it would be unfair to allow the promise to be withdrawn. The High Court relied on that doctrine in Dixon.

Are share options covered by standard settlement agreement advice?

Not always in enough detail. Share options often require a separate review of the plan rules, grant documents and tax position. This is especially important where the options are high value or tax-advantaged.

Can EMI options be revived after they lapse?

HMRC’s guidance indicates that certain variations are only possible where the option had not already lapsed, expired or been exercised at the time of the change. Once an EMI option has lapsed, preserving the same tax-favoured treatment may be difficult, so specialist advice is strongly recommended.

Should I sign first and ask about my share options later?

That is risky. If share options form part of your exit package, they should be checked before signing. Once the agreement is completed, your bargaining position may be weaker, and some option rights may already have lapsed under the plan rules.

Summary and Next Steps

A settlement agreement on share option rights should never be treated as a routine clause.

Key takeaways:

• Share plan rules still matter, even where the settlement agreement contains reassuring wording.
• Dixon v GlobalData PLC shows that informal or negotiated assurances can have legal consequences, but they are not a substitute for proper scheme approval.
• Timing and paperwork are critical, especially for EMI and CSOP options.
• Employees should ask for the plan rules, grant documents and approval documents before signing.
• Settlement agreements that waive statutory employment claims must satisfy the statutory conditions for validity.

If your exit package refers to shares, options or equity incentives, it is sensible to have those terms reviewed carefully alongside the settlement agreement as a whole.

Feel free to contact us if you are facing a similar situation in your place of work. Our solicitors will be happy to provide you with the advice and support you need. You can call us on 0330 818 1428 or leave a message on our website.