Case roundup

This week’s case roundup

Cancellation of share options irrational
Mallone v BPB Industries, unreported, February 2002, Court of Appeal

BPB operated a senior executive share option scheme and the options could be
exercised after three years but lapsed if an executive was dismissed on ‘fault’
grounds. If an executive left on ‘no fault’ grounds he could purchase an
‘appropriate number’ of shares, calculated taking into account length of
service and the appropriate multiplier but subject to the directors’ absolute
discretion.

Mallone commenced employment in 1988 and participated in the scheme from
1990 to 1992. On 2 November 1995 his employment ended on ‘no fault’ grounds.
The following day, the directors cancelled his share options (but did not
inform Mallone) and calculated that the ‘appropriate number’ was zero.

In September 1997, when Mallone tried to exercise his share options, he
learned of the directors’ decision. He brought a successful claim arguing that
cancellation of the share options was unlawful under the terms of the scheme
and the High Court held that the directors had acted irrationally.

BPB unsuccessfully appealed. The options were granted as reward for past
performance and in anticipation of future loyalty and were vested property
rights. Notwithstanding the directors’ absolute discretion, that discretion had
been exercised irrationally.

There was nothing in the circumstances of Mallone’s dismissal which
justified divesting him of his accrued rights and there was no reasoning behind
the decision to cancel the share options.

What is an undertaking?
Initial Contract Services v Harrison and others, IRLB 682,EAT

From 1982 until 1999 Initial carried out cleaning at R’s premises but lost
the contract to HES.

After meeting with Initial’s staff, HES concluded most of them could not
accommodate R’s changed hours and HES did not take on any of Initial’s
cleaners.

The tribunal decided that the cleaning service was not an undertaking and so
there was no transfer. It considered the following factors: whether the
workforce transferred; whether any tangible or intangible assets transferred;
whether the position after the event was broadly similar to the position
before, and whether there was a stable economic entity.

In determining this last question, it found that the number of cleaners
servicing the contract had fluctuated in the extreme between 1982 and 1999.

The tribunal concluded that the operation was merely a group of employees
carrying out part of Initial’s overall business under the control of its central
organisation and accordingly, Initial was the employer at the time of
dismissal.

Initial appealed arguing the tribunal’s findings were perverse but the EAT
held the tribunal had taken into account the relevant factors and dismissed the
appeal.

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