Or, if the employee can show that the employer made promises it should have known were false and he or she suffered damages as a result, the company may find itself defending a negligent misrepresentation lawsuit. Thus, you would be wise to avoid making promises that you may later be unable to keep. The outcomes of these cases often depend on the jurisdiction. In California, such a provision could not be enforced against the employee, but under New York law, an employee may forfeit any profit realized under the option if he or she began working for a competitor while a noncompete agreement is in effect. Finally, you should note that a merger or acquisition can lead to lawsuits over stock options.
Some plans require acceleration of the option upon sale or merger of the company.
That could lead to shareholder suits against the board of directors for diluting the value of the company's shares or, if the options are not accelerated, the employees may sue for breach of contract. To reduce the risk of such litigation, you should consider including a provision in your option plans that would accelerate options only when there is either a merger or acquisition and the employee loses his or her job or has a reduction in duties. Such provisions should carefully define what constitutes a triggering transaction - whether it is a merger, acquisition, or other change of control. Conclusion These are just a few of the types of lawsuits that have resulted from the proliferation of stock options in recent years. Stock options are likely to remain popular, even though they may be less lucrative than in the past.