Does an employee holding securities that give deferred access to the capital of their company benefit from a suspension of their employment contract? Here are the points that should catch your attention regarding the impacts on their vesting schedule.

As a reminder, "vesting" or the vesting schedule refers to the period during which a beneficiary of securities giving access to the capital of a issuing company (BSPCE, AGA, SO...) acquires the right to exercise them and convert them into shares.

This vesting aims to align the acquisition of rights with the duration of the employee's presence in the company. That's why most grants anticipate such vesting.

But what are the consequences of a suspension of the employment contract on this vesting? Does the suspension of the employment contract necessarily result in a suspension of vesting? Here are some elements of answer.

What do we mean by suspension?

In employment law, the suspension of the employment contract refers to the situation during which the payment of the salary by the employer and the execution of a job by the employee temporarily stop.

This situation includes many cases: exercise of the right to strike, sick leave or work accident, maternity/paternity leave, adoption or parental leave, sabbatical leave, temporary closure of the company, layoff...

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

• during the suspension: benefit from certain rights - such as allowances (maternity/paternity leave, time-saving account, parental education leave...) or training actions (illness, partial unemployment...);
• on their return to the company: find their job or a similar job, with at least the same remuneration.

In terms of the vesting schedule, the suspension of vesting corresponds to a temporary interruption of the vesting schedule of employee shareholding titles - i.e. the different deadlines at the end of which the titles become definitively acquired by their beneficiary and therefore exercisable.

💡Do not confuse with the suspension of the right to exercise, which corresponds to the situation where the competent decision-making body (President, Board of Directors, executive board) decides to temporarily suspend the exercise right of BSPCE beneficiaries and other similar titles, prior to an operation on the capital (merger, split or other) requiring exact and prior knowledge of the number of capital shares of a company.

Regardless of the reason for the suspension of his vesting, the title holder employee will benefit:

• during the suspension: from certain rights associated with their status as the holder of securities giving access to the capital of the issuing company - such as the public order right to participate in general meetings of holders of the same title to defend their common interests (via groups of BSPCE holders or similar titles) for example.
• on the employee's return to the company: from the resumption of their vesting schedule without changing the maximum exercise period of the BSPCE - except for the agreement of shareholders and/or a secondary decision-making body if necessary (president, administrative board, board,...)

The fact of submitting allocated titles to a vesting schedule is not a legal obligation - the texts of the commercial code governing the different employee shareholding schemes only aim at the status of employee at the date of allocation.

A fortiori, the law does not provide for any effect on the suspension of the employment contract of a title holder subject to a vesting schedule.

In other words, the suspension of the employment contract of a title beneficiary will not automatically lead to that of their vesting schedule, if the rules of the associated plan do not specifically provide for it.

Moreover, a suspension of the vesting schedule cannot be unilaterally implemented by the issuing company after the allocation, as such a decision would, de facto, be unfavourable to the holder and would therefore require their express consent.

In this context, what should you therefore provide for in your plan rules? 

Suspension of vesting: the best practice

Anticipating the hypotheses of vesting suspension is an important element to be integrated, through stipulations in this sense, from the development of the documentation framing the allocation or subscription of employee shareholding titles. This is a real best practice to avoid:

• the conclusion of subsequent amendments in strict application of the procedure provided for in the plan - a process all the more heavy if it involves validation by a collegial body such as the board of directors or other board, which does not have the vocation to meet outside pre-determined periods;
• the non-acceptance of such amendments by beneficiaries whose employment contract would be suspended according to certain reasons (cf. below).

Especially since, if it used to be a marginal practice - in a context of lengthening careers, concerns about big and quiet quitting or recruitment difficulties - more and more companies are now considering the opportunity to grant requests for suspension of the employment contract of their employees, to better find them.

What should be provided for in terms of vesting suspension?

Here are our recommendations on the elements to provide:

1. The deadline from which this suspension will take effect - ex: in case of suspension of the employment contract for a continuous period of at least 30 days

2. The automatic and general nature of the suspension - without the need to previously accomplish any formality in this respect for the issuing company

3. The consequences of the suspension - i.e. the extension of the duration of the vesting schedule for a duration equivalent to that of the suspension of the employment contract

4. The exceptions to this suspension. These can be:

• • legal and regulatory exceptions: including paid leave, compensatory rest, maternity/paternity/adoption leave, illness or work accident resulting in an absence of less than 3 months over a given period of 12 months

    💡 In practice, the cases of vesting suspension mainly concern, in fact, parental education leave, sabbatical leave and other long-term unpaid leave

  • other more specific exceptions: situation of accumulation with a corporate mandate within the same company or a company of the same group for example

5. A detailed example - to allow the employee to understand their rights well and thus maximize their adherence and confidence

Our advice: equip yourself with a shareholding management tool 

Have you well anticipated the cases of vesting suspension in your employee shareholding documentation? You still need to be able to easily follow them all, because who says suspension also says complexity in the management and monitoring of your plans.

Our recommendation will therefore be to ensure that you have a tool that can reflect the suspension operations of your beneficiaries of titles subject to vesting.

On this subject, discover our new feature 😉