Terminated Employee May Be Entitled To Vested Stock Options

June 27, 2003 (PLANSPONSOR.com) - Allegedly terminating a Dell Computer Corp. employee on account of a disability, may lead to immediate vesting of unexercised stock options.

>Denying summary judgment for both sides, US District Judge Christopher Droney of the US District Court for the District of Connecticut found the former Dell employee may be entitled to the accelerated vesting if she is able to prove the company did not exercise good faith when it determined her employment was not terminated on account of disability according to Washington-based legal publisher BNA.

>However, Droney found two questions of fact existed in Sadowski v. Dell Computer Corp:

  • Dell’s compliance with state law good faith requirements
  • not addressing the employee’s breach of contract claim under ERISA because Dell failed to raise ERISA preemption as a defense , even though the two plans in question were ERISA-governed.

Dueling Vesting Plans

>Glenys Sadowski was hired as a marketing manager for Dell in September 1997 and participated in both the “Incentive Agreement” and the “Direct Rewards Plan” stock option plans.   Both plans contained a provision granting immediate vesting of unexercised options if an employee were discharged because of a disability.

>Sadowski took a medical leave of absence from Dell in April 1998 and after several extensions of her leave of absence, Dell terminated Sadowski in January 1999. Dell refused to provide Sadowski with immediate vesting of her options, arguing that under the two stock option plans at issue, it was only required to give the employee immediate vesting of her options if her employment was terminated because of her disability. In this case, the company claims Sadowski was terminated, but not on the account of her disability, and thus was not entitled to accelerated vesting.

>Sadowski sued Dell for breach of contract, seeking the accelerated benefits. However, even though the plans were governed by ERISA, Dell did not argue that ERISA preempted the breach of contract claim, according to the court.   The court thus found that under precedent of the US 2nd Circuit Court of Appeals, Dell had waived the right to raise an ERISA preemption defense.

>The court went on to find that issues of fact existed as to whether Dell acted in good faith when it determined that Sadowski had not been discharged on account of her disability. In so ruling, the court noted that the plans’ provisions for immediate vesting on account of disability would be rendered meaningless if Dell was given absolute discretion to determine whether an employee had been discharged on account of disability.

The case is Sadowski v. Dell Computer Corp., D. Conn., No. 3:00CV2113 (CFD), 6/23/03.