Continuing our series on the implications of recent significant cases, Chris Middleton of Kemp Little's employment group looks at the issues surrounding some employment-related disputes
Company acted irrationally in cancelling share options
Malone v BPB Industries plc  IRLR 452
From 1988 until his dismissal for poor performance in 1995, Mr Malone was employed by BPB's Italian subsidiary. He was granted options under BPB's senior executive share option scheme in 1990, 1991 and 1992.
Under the rules of the scheme, an option could be exercised once it had been held for three years. However, when Malone sought to exercise all his options in 1997, he was told they had been cancelled by a resolution passed by BPB's directors when he was dismissed. Malone brought an action against BPB, claiming that the cancellation of his options had been unlawful.
The rules of the scheme provided that, if the employee's employment terminated for a reason other than misconduct, the employer had an 'absolute discretion' to decide the 'appropriate proportion' of options that the employee would be entitled to exercise. When exercising their discretion, the directors of BPB decided that the appropriate proportion should be zero, and effectively cancelled all of Malone's options.
The High Court held that under the terms of the scheme, BPB was not entitled to cancel options that had matured. However, it went on to find that, even if the board of directors was entitled to cancel Malone's matured options, the decision to exercise its discretion in this way was irrational and perverse. It therefore awarded damages of £100,636, plus interest. BPB appealed.
The Court of Appeal rejected BPB's argument that the test for irrationality should be judged by the standard of good faith as an employer could still act irrationally even though it was being honest. Instead, it held that the correct test for irrationality is whether the decision was one that no reasonable employer could have reached.
On the facts of the case, the Court of Appeal agreed that BPB had exercised its discretion in a perverse and irrational manner. This was influenced by the fact that the options had been awarded at a time when Malone's performance had been good, and the options had matured by the time of his dismissal.
Moreover, the court found it hard to see why Malone should be put in the same positi