Expiry clauses for virtual option rights

With its most recent decision on the expiry of virtual option rights (judgment of 19 March 2025 - 10 AZR 67/24), the Federal Labor Court has expressly departed from its case law from 2008.
At that time, the court had still ruled that granting of option rights can generally be linked to an existing employment relationship that has not been terminated. In this respect, the special nature of virtual options was taken into account, which meant a supposedly greater scope of discretion for employers.

The Federal Labor Court has now ruled that provisions of the employer in general terms and conditions stating that such options expire immediately in the event of termination by the employee are invalid. Furthermore, clauses according to which virtual options only expire over time are also invalid in the event of other termination of the employment, provided the expiration period is too short compared to the duration of the "vesting". The court ruled that the employee is at an unreasonable disadvantage if the options allocated to him/her expire "twice as quickly" as they were acquired. According to the court's decision, the corresponding entitlements are part of the remuneration owed for the work performed. In addition, the forfeiture provision constitutes a disproportionate obstacle to termination, as the option holder would not be at freedom to terminate the employment relationship before an uncertain exercise event in order to avoid a possible loss of assets.

It should be noted that the present decision concerns a case in which the employer itself grants option rights as part of the employment relationship or commits to provide the corresponding shares itself under the employment contract. On the other hand, it should still be permissible for other group companies (possibly based abroad) to exclusively grant option rights outside the employment relationship in accordance with (foreign) law, which could provide for corresponding forfeiture clauses (depending on the applicable foreign law).