Suspension of an Employment Contract: How Does It Affect the Vesting Schedule for Your BSPCE, AGA, and Other Stock Options?

What if a holder of BSPCE, AGA (bonus shares), or stock options goes on sabbatical, parental leave, or is on long-term sick leave? The question often arises: Does the vesting schedule continue, or is it suspended?

In practice, there is generally no automatic rule under French law. The answer depends primarily on the plan’s terms and conditions, the grant documentation, and the terms of acceptance by the beneficiary. However, it is essential to verify that the provisions remain consistent with labor law, particularly those relating to protected leave and non-discrimination. A comprehensive analysis of the incentive plan, the beneficiary’s status, and the nature of the contract suspension is therefore necessary to ensure a sound approach.

What is meant by “suspension”?

In labor law, the suspension of an employment contract refers to a period during which the performance of work is temporarily interrupted and in which compensation may be suspended in whole or in part depending on the specific reason (e.g., strike, illness or accident, maternity/paternity leave, adoption or parental leave, sabbatical, layoff, etc.).

Depending on the reason for the suspension, the employee may, in particular:

• during the suspension: retain certain rights (compensation, special protection, access to certain training programs, continued coverage under benefits, etc.);
• in many cases of protected suspension of the employment contract, be entitled to reinstatement in their job or a similar position with at least equivalent pay.

In the context of employee stock ownership, a “vesting suspension” generally refers to a temporary interruption of the vesting schedule for rights attached to a financial instrument (stock purchase warrants, stock options, bonus shares, etc.). Depending on the plan’s rules, this suspension may result in a delay in vesting dates or a temporary suspension of the time elapsed during the suspension period.

💡 Not to be confused with temporary exercise restrictions that may be provided for in the plan or decided by the relevant corporate bodies (Chairman, Board of Directors, Executive Board, etc.), particularly in connection with capital transactions or sensitive periods, in order to safeguard corporate operations and securities management.

The suspension of vesting does not necessarily result in the loss of rights already attached to the instrument in question. The scope of these rights, however, depends on the type of instrument, the stage of vesting, and the provisions of the plan. For example, a holder of unexercised BSPCE options does not enjoy the rights associated with shareholder status.

Furthermore, the vesting schedule generally resumes at the end of the suspension in accordance with the terms set forth in the plan. Conversely, this suspension does not necessarily result in the automatic extension of other applicable deadlines (such as a maximum exercise period), unless expressly stipulated in the legal documentation or by a validly adopted corporate resolution where legally permissible.

The establishment of a detailed vesting schedule (cliff, phased vesting, etc.) does not, in and of itself, constitute a general legal obligation: it is primarily a matter of contractual and market practice. Certain legal provisions (notably bonus shares), however, remain subject to minimum time periods set forth in the Commercial Code.

Moreover, the effect of a suspension of the employment contract on vesting is not automatic. In practice, it is strongly recommended that the consequences of a suspension of the employment contract on the vesting schedule be explicitly and unambiguously set forth in the plan rules and grant documentation.

In other words, the suspension of a beneficiary’s employment contract will not necessarily, on its own, result in the suspension of their vesting schedule if the rules of the relevant plan do not specifically provide for it.

Finally, the unilateral implementation or modification, after grant, of a vesting suspension mechanism can be legally sensitive, particularly when it adversely affects the beneficiary’s vesting or exercise conditions. It is therefore important to ensure both the legal basis for the modification and the applicable procedure are sound.

In this context, what should you include in your plan’s rules?

Vesting Suspension: A Best Practice for Planning Ahead

Anticipating scenarios involving the suspension of vesting is generally considered a best practice from the very outset of drafting the documentation governing the grant or subscription of employee equity instruments (BSPCE, stock options, bonus shares, etc.).

The goal is, in particular, to limit:

• the need for subsequent amendments or modifications to the plan, which are often cumbersome to implement, particularly when they require the involvement of a governing body (Board of Directors, shareholders’ meeting, etc.);
• difficulties related to the enforceability or acceptance of subsequent amendments by the affected beneficiaries (particularly in cases of parental leave, sabbatical leave, long-term unpaid leave, extended sick leave, etc.).

What provisions should be included regarding the suspension of vesting?

Here are some practical recommendations on provisions that may be included in the plan rules and grant documentation (to be adapted to the specific plan, the company’s governance structure, and applicable social, tax, and corporate requirements).

1) The time period after which the suspension may take effect

The plan may specify the duration of the suspension of the employment contract after which a suspension of vesting may apply.

Example: “In the event of a continuous suspension of the employment contract for a period exceeding X days, the vesting schedule may be suspended in accordance with the terms set forth in the plan.”

It is generally preferable to avoid ambiguous wording and to specify whether the threshold is assessed on a continuous or cumulative basis.

2) Whether the suspension is automatic or discretionary

The plan may also specify whether the suspension: applies automatically once the specified conditions are met or requires a decision by the competent body (Chair, Board of Directors, ad hoc committee, etc.).

Example: “The suspension of the vesting schedule takes effect automatically when the conditions set forth in the plan are met.”

or, conversely: “The suspension of the vesting schedule may be decided by the competent body in accordance with the plan’s provisions.”

The choice depends, in particular, on: the desired level of flexibility, governance constraints, and the degree of customization sought in handling the situations in question.

3) The Consequences of Suspension

The plan’s rules should specify the exact effects of the suspension on the vesting schedule. Examples of points to address:

• postponement of vesting dates;
• exclusion of the suspension period;
• handling of cliff periods;
• handling of successive vesting tranches;
• any potential impact on exercise deadlines, where legally permissible.

Example: “The vesting schedule is extended by a period equivalent to the duration of the suspension of the employment contract.”

It is recommended to explicitly specify the calculation methods to avoid interpretation difficulties.

4) Exceptions to the suspension

The plan may provide for certain situations in which the suspension of the employment contract does not result in a suspension of vesting. These exceptions may include:

• certain types of leave or absences that are contractually treated as a period of continuous service;
• certain situations protected under labor law;
• or certain specific situations related to the group’s governance or organization.

Examples: paid leave, maternity, paternity, or adoption leave; intra-group transfers; and holding both an employment contract and a corporate office within the group.

Particular attention must be paid to ensuring that these exceptions are consistent with applicable labor laws, particularly regarding non-discrimination and the protection of certain types of leave.

5) A Detailed Example

A simple example (dates, duration, effect on deadlines) helps the beneficiary understand the practical impact.

Our advice: Implement a shareholding management tool

Including provisions for vesting suspensions in the plan’s legal documentation is a first step. However, it is also essential to be able to reliably track these situations over time.

In practice, suspension mechanisms quickly complicate the operational management of employee stock plans: shifts in vesting dates, differing rules across plans, handling exceptions, tracking internal approvals, and so on.

It is therefore generally recommended to have a suitable tool—or, failing that, a sufficiently robust internal process—that allows you, in particular, to:

• track suspensions (reason, dates, supporting documentation, applicable decisions);
• recalculate vesting dates according to the rules of the relevant plan;
• maintain a history of decisions, approvals, and any exceptions;
• ensure data reliability prior to any capital transaction or liquidity event.

In this regard, check out our “Suspension of Security Vesting” feature

Conclusion

The safest approach is to avoid any unanticipated case-by-case management. In practice, it is advisable to determine (1) whether vesting should be suspended in the event of a suspension of the employment contract, (2) under what circumstances and according to what potential exceptions, and then (3) to clearly formalize these rules in the plan’s terms and conditions and the grant documentation, while establishing appropriate operational oversight.

When multiple plans coexist, implementing a dedicated management tool generally helps minimize calculation errors, ensure consistency in processing, and provide a solid basis for decisions prior to capital transactions.

Sources

• Official public service website