Granting Equity Abroad: Employment Law Pitfalls and Best Practices

Transcription

1 Granting Equity Abroad: Employment Law Pitfalls and Best Practices Céline Buys, Baker & McKenzie (NE) Christine Kim, AbbVie, Inc. (US) Aimee Soodan, Baker & McKenzie (US)

2 Introduction Céline Buys Christine Kim Aimee Soodan

3 Agenda Preparing Grant Documentation Distributing Grant Documentation Grant Acceptance Loss of Equity Awards Recap Dos and Don ts

4 The Big Picture Securities Law Tax EQUITY AWARD Exchange Control Employment Law

5 Documentation Award Notification Do not reference equity awards in offer letter or employment agreement Ensure equity award letter is on issuer s letterhead Process for distribution of letters (sent by issuer by mail or e- mail, or distributed locally)

6 Documentation Award Agreements Global Form of Award Agreement: Better coverage for transferring employees Avoids need to modify awards to comply with local law of new country Too much tedious language for US employees?

7 Documentation Award Agreements Award Agreement Appendices / Exhibits: Modify terms of template award agreement Include country-specific awardee notifications

8 Documentation Award Agreements International Disclaimer Language Overall Goals: Protect company from legal risks Benefit company/employees (tax favorable treatment) Communicate information to employees

9 Documentation Award Agreements Incorporation of International Disclaimer Language: Mitigate vested rights/entitlement issues Mitigate risk of continued vesting and/or exercisability through notice period Mitigate risk of establishing employment relationship between issuer and award recipient Mitigate risk that equity benefit included in vacation pay, overtime, 13 th -month salary, severance, payment in lieu of notice, etc.

10 Documentation Award Agreements Points to Specifically Address in Award Agreement: Implications of termination of employment LOAs and garden leave No right to continued employment Award constitutes extraordinary item of compensation Discretionary nature of award and plan Consent to receive all documentation in English Data privacy consent language

11 Documentation Award Agreements Points to Address in Award Agreement: Governing law / choice of venue Mitigate risk of application of (more employee-friendly) foreign law Select local court (or arbitration forum, if allowable) as exclusive location (i.e., venue) in event of dispute Issuer flexibility to impose requirements necessary / advisable under local law

12 Documentation Award Agreements Translations: Required by law? Support enforceability of terms (look to sophistication of award recipient) For translated versions, specify which version controls (i.e., English version) but don t rely on this alone have translations legally checked Include consent to use of English provision

13 Documentation Award Agreements Potentially Problematic Provisions: Non-compete Clawback Retirement

14 Documentation Award Agreements Updating of Grant Documents: Frequency at least once a year Consider updating more frequently if substantial changes in laws occur or in response to significant cases

15 Distribution of Grant Documents Determine procedure for distribution of grant documents: Electronic delivery ( or intranet) versus hardcopy delivery Consider country-specific requirements for delivery Any countries require hardcopy delivery? Other country-specific rules

16 Grant Acceptance Determine procedure for acceptance of grant documents: Electronic vs. written acceptance What are the electronic acceptance procedures? Is electronic acceptance permissible/enforceable in all countries? Active acceptance vs. deemed acceptance Past practice danger not following stated terms Watch out for country exceptions (e.g., Belgium)

17 Loss of Equity Awards Treatment of Equity in Global Reductions in Force ( RIFs ) / Terminations Reducing Awards / Eliminating Equity Plans

18 Loss of Equity Awards Treatment of Equity in Global RIFs or Terminations: What do you have to do? Due diligence: Review relevant documents to determine treatment of equity awards

19 Loss of Equity Awards Treatment of Equity in Global RIFs: What do you want to do? Consider possibility and implications of more favorable treatment

20 Loss of Equity Awards Treatment of Equity in Global RIFs or Terminations: Determine whether equity awards likely to be treated as local compensation for severance payments/termination indemnities Due diligence: Are awards mentioned in local employment agreements, handbooks, offer letters, etc.? Should not automatically include value of equity award income in calculations Consider past practice and future impact

21 Loss of Equity Awards Treatment of Equity in Global RIFs or Terminations: Decide whether to enforce termination provisions after weighing risks of claim / due diligence Consider confidentiality agreement Exclude employees targeted for upcoming RIF from upcoming grant cycle?

22 Loss of Equity Awards US Issuers: Drafting Effective Equity Award Releases for Non-US Employees Generally, stand-alone release for equity awards, separate from general employment release From US issuer, not local employer Requires separate consideration from US parent If single release used, ensure broad enough to cover US issuer; local entity may also want protection Equity piece governed by US law

23 Loss of Equity Awards Reducing / Eliminating Equity Plans: Terminate ESPPs / Eliminate Broad-Based Grants Vested right? Check employment contracts & other documents Works council consultation? Frequency of awards Constructive dismissal claims

24 Loss of Equity Awards Reducing / Eliminating Equity Plans: Notification Requirements? To employees From US parent, not local employer Translation likely not mandatory Emphasize parent company s discretion to terminate plan, etc. To works councils / unions To regulatory agencies

25 Best Practices: Recap Dos Include internationalized disclaimer language in award agreements Indicate authority to make modifications to awards Clearly spell out termination provisions Address LOAs and garden leave Include severability provision Obtain signed award agreements in spite of difficulty

26 Best Practices: Recap Dos Ensure consistency between plan document, award agreement and other documents Ensure consistency with company s practice Review local effect of non-competes / clawbacks Review effect of retirement provisions Do due diligence if contemplating employment terminations or plan/broad-based award termination

27 Recap Don ts The following should be avoided: Award agreements between award recipient and issuer and local employing entity Referencing equity plan(s)/awards in offer letter and/or employment contract Indicating local law will control Award agreements that incorporate key plan terms by reference

28 Recap Don ts The following should be avoided: Assuming that non-competes or clawbacks are okay without country-specific analysis Translation of plan materials by local HR without legal review by counsel

29 Questions? Céline Buys Baker & McKenzie LLP +31 (20) Christine Kim AbbVie Inc Aimee Soodan Baker & McKenzie LLP