TURGERLEGAL - Expertise. Reliability. Dedication

Federal Labor Court decides on virtual stock options in the context of waiting period compensation

Expert article in labor law

Federal Labor Court decides on virtual stock options in the context of waiting period compensation

With its ruling of March 27, 2025 (8 AZR 63/24), the Federal Labor Court (BAG) clarified an important question regarding the consideration of virtual stock options in compensation for non-compete periods. While this form of compensation can be attractive, its legal classification is crucial, especially in the case of existing non-compete clauses.

Background of the case

An employee had been working for his employer since October 1, 2019, and received an annual salary of €100,000. The parties agreed to a post-contractual non-competition clause pursuant to Sections 74 et seq. of the German Commercial Code (HGB). During the course of the employment relationship, the plaintiff received virtual stock options that did not entitle the holder to shares, but rather to a cash payment, and which had to be "earned" over a period of four years. Following the IPO in September 2021, the plaintiff exercised the first options while still employed. The employment relationship ended on June 30, 2022. Thereafter, the plaintiff continued to exercise further options.

The plaintiff demanded that all payments from the virtual stock options, including those made after the termination of the employment relationship, be taken into account when calculating the waiting period compensation. Both the lower courts and the Federal Labor Court rejected this demand.

Judgment of the Federal Labor Court

The Federal Labor Court has ruled that benefits received by an employee from a virtual stock option program during an existing employment relationship count as the last contractually agreed remuneration received pursuant to Section 74 (2) of the German Commercial Code (HGB). This remuneration is considered remuneration for work performed within the scope of the employment relationship.

For the calculation of the waiting period compensation, these benefits must be taken into account in accordance with Section 74b (2) of the German Commercial Code (HGB). The average of the last three years or the duration of the corresponding contractual clause – in this case, 33 months – is taken into account. The decisive factor is that the options were exercised during the employment relationship within the defined period of Section 74b (2) of the German Commercial Code (HGB). Benefits resulting from the exercise of options after termination of the employment relationship are not considered the last contractual benefits received according to Section 74 (2) of the German Commercial Code (HGB) and are therefore not to be taken into account when calculating the waiting period compensation.

Conclusion

It is essential for employers and employees to precisely document the time at which virtual stock options are exercised. Only options exercised during the employment relationship are included in the waiting period compensation. If the option is exercised after the end of employment, this portion of the compensation is not taken into account when calculating the compensation, which can have a significant impact on the amount of compensation.