Employment & Labour- Finland

In a decision of May 18 2006 the Supreme Court ruled that share options awarded to employees must, to a certain extent, be taken into account when determining compensation for unfair dismissal.

The case concerned proceedings brought against a multinational corporation by a former employee demanding compensation for unfair dismissal. The claimant's employment contract had been terminated by the company for reasons attributable to the claimant, namely a lack of trust.

The claimant argued that the option rights granted under the company's employee share option programme should be taken into account when calculating the income on which compensation - between three and 24 months' salary, according to the applicable provisions - was based. Furthermore, the claimant stated that both exercised and unexercised option rights should be included, the latter on the basis of estimated income.

Although the district court deemed the claimant to have been unfairly dismissed and awarded him 10 months' salary as compensation, it denied the claim regarding the inclusion of income from exercising option rights. This decision was subsequently upheld by the Court of Appeal.

Granting leave to appeal, the Supreme Court examined the case with regard to whether income from share options should be taken into account when calculating the amount of compensation for unfair dismissal.

The Supreme Court noted that the income from share options was part of the overall salary paid by the company. However, this did not as such merit the inclusion of the share option income; instead, the question had to be addressed taking into account the specific provisions regarding compensation for unfair dismissal. Based on this analysis, the Supreme Court found share option income to be neither exceptional nor incidental and, therefore, it had to be taken into account when determining the salary on which compensation was based.

Regarding the amount to be taken into account, the Supreme Court held that share income could be taken into account only insofar as it had been realized. Thus, expected income based on share option rights that had not yet been exercised may not influence the amount of compensation.

The court issued its ruling with a five-to-one majority. The dissenting judge argued that income from share options should not be included in salary when determining compensation for unfair dismissal as the share option income was based on a salary benefit granted at the company's discretion and the amount of income realized was based on speculative activities by the claimant.

The judgment provides clarification with regard to determining compensation for unfair dismissal. However, in other respects some open issues remain, in particular regarding the extent to which share option income should be included when calculating, for example, sick pay or salary for periods of being obstructed from work.

International Law Office