Even if you lose your job, you are unlikely to gain immediate access to your unvested stock
In the past, there used to be upside to being made redundant: unvested stock was made immediately accessible. If you had a large amount of stock, this made redundancy a good bet - especially if you were working for a bank whose stock price was in decline.
Today, banks' stock prices are declining rapidly, but redundant employees are not able to sell their shares when employment is severed. In many cases, vesting schedules remain exactly the same as if they had not been terminated.
"Many of the contracts I've seen have deferred stock provisions after termination," says Philip Landau at solicitors Landau Zeffertt Weir. "It never used to be this way - you used to leave and that was it."
"The standard approach tends to say that deferred stock continues to vest," says Nick Dent at law firm Barlow Lyde & Gilbert. "You don't get a windfall as a result of redundancy, but nor do you lose your stock. The vesting schedule remains the same. If clawbacks are written into your contract, they will probably still apply post-termination."
This means that even if you're made redundant and the bank makes a loss two years later that is unrelated to your actions, your stock could be clawed back. It also raises questions over what happens when an individual who is involuntarily terminated from Bank A with a large amount of unvested stock wants to work for Bank B.
Lawyers claim not all banks treat the stock holdings of redundant employees similarly.
"UBS doesn't allow stock to vest immediately, but Morgan Stanley does," says the founder of one City law firm. BarCap and Deutsche are also alleged to make redundant staff adhere to existing vesting schedules. None of the banks concerned were able to confirm their policies, however.
Dent says the changed approach to vesting upon redundancy reflects a shift in attitude towards deferred stock. "In the past, deferred stock was seen as a retention device and it wasn't seen as appropriate for a bank to hold onto someone's deferred stock when it had initiated redundancy.
"Today, deferral is also about seeing what the medium term effects of an individuals' actions are and seeing how business today affects the share price in three years' time. That logic doesn't disappear if someone is made redundant."
Non-compete clauses and undeferred stock
What happens if an individual who is made redundant from say, UBS, with a large amount of undeferred stock wants to join, say, Credit Suisse?
In many cases, lawyers say banks (not UBS specifically) will attempt to attach non-compete clauses to the undeferred stock.
These will often state that the employee - even though he/she has been made redundant through no choice of his/her own - cannot work for a rival bank and solicit former clients and colleagues without foregoing all unvested stock in their former employer. Such clauses will be binding until all stock has vested (ie. for three years).
The implication is, therefore, that a redundant banker who wants to find a new job with a rival firm will need to either forego all unvested stock, to agree not to approach previous clients (thereby rendering themselves far less employable), or to find a new employer who will buyout all his/her unvested stock awards (also rendering themselves far less employable).
This doesn't seem entirely fair. But lawyers say it is entirely legal to attach non-compete clauses to unvested stock owned by redundant employees. The real question is how long these clauses can be imposed for. Jane Mann, head of employment law at solicitors Fox Williams, says it's very hard to make non-compete awards binding beyond six months. Banks' efforts to attach non-compete clauses to unvested stock awards over three years may therefore be unenforceable.
"Someone is going to bring a court case on this very soon," she predicts.
