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Forfeiture of Virtual Options in Employee Participation Programs – New Case Law from the Federal Labor Court (BAG)

Virtual employee participation programs are a popular tool for retaining employees and enabling them to share in the company's success—without transferring actual company shares. Instead, employees receive a stake in the form of virtual option rights or bonus payments linked to the company's value (VSOP or VESOP). The key difference from traditional Employee Stock Option Plans (ESOPs) is that employees do not receive corporate ownership rights such as voting rights. Instead, they benefit from a value-based participation that is usually paid out upon a company sale (exit event) or after reaching specific milestones—this is a contractual replication of equity-like rights.

Ineffectiveness of so-called “catch-all clauses” on confidentiality and the protection of trade and business secrets in employment contracts

Federal Labor Court decision
On October 17, 2024, the Federal Labour Court rejected the appeal of a well-known manufacturer of filling machines. Its aim: to protect its own trade and business secrets. An employee who had left the company was to be prohibited from passing on this sensitive information to a competitor company as part of his new job. The employment contract of the employee who had left the company contained a comprehensive and indefinite confidentiality clause with regard to trade and business secrets as well as all other matters and processes of the company that came to light in the course of his work.

Loss of pension entitlements due to criminal conduct

On December 12, 2024, the Regional Court of Munich II dismissed the action brought by a former member of the management board of a district savings bank. His objective: the payment of his contractually agreed pension for the month of March 2023. The plaintiff had been sentenced shortly beforehand in January 2023 to a total prison sentence of 1 year and 8 months for breach of trust in 30 cases. The district savings bank, an institution under public law, which only learned of the conviction at the end of February 2023, filed a counterclaim and demanded repayment of the pension payments already made from January 13, 2023.

What will change for employers as a result of the Bureaucracy Reduction Act?

Germany's economy is groaning under bureaucracy. This is currently at least a common narrative in politics and in the "executive floors". Small and medium-sized companies in particular are complaining about the ever-increasing administrative burden and the associated high costs. In view of Germany's weak economic data, the "traffic light" government has now decided to reduce the burden on the German economy by around 944 million euros per year through the so-called Bureaucracy Relief Act IV[1]. This relief is to be achieved, among other things, by reducing the formal requirements under civil law.