The NASPP Blog

In the NASPP’s 2014 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte), 92% of respondents said they use at least one electronic form to distribute individual grant notices and/or agreements to US employees. In the same survey, 76% of respondents said that a separate form of acceptance of a grant is required. That translates into a majority of responding companies using electronic delivery methods for at least some of their US grant material, with a majority also requiring proactive acceptance of the terms. This combination of practices was recently tested in litigation. Keep reading to find out the outcome.

If you’re a company that distributes grant documents and requires acceptance of award terms electronically, a recent court case may help validate the processes you have in place for those practices. In a recent blog titled “Stock Award Web Process Works: Non-compete Enforced” (February 7, 2017), author Mike Poerio describes a recent court case (ADP, LLC v. Lynch & Halpin – New Jersey) that “upheld the granting of a preliminary injunction against two former employees who had joined a competitor in violation of restrictive covenants set forth in their stock awards.”

At the core of the former employees’ argument was that the web-based acceptance system for their stock grants did not adequately inform them of the full consequences for accepting the terms of their awards (which included references to a non-compete agreement). As Poerio describes, “the former employee lost their case because because ADP’s check-the-box award system involved the following key steps that led the court to bind them to the stock award agreements and the associated non-competes.”

Poerio analyzes ADP’s step-by-step award acceptance process and provides his commentary on how each step played into the outcome of the award case. Here’s a great chance to compare your own electronic grant acceptance steps to the process that ultimately helped ADP prevail. Perhaps there are areas where covenants can be strengthened or the acceptance process improved.

According to the same 2014 NASPP/Deloitte survey mentioned at the beginning of this blog, 12% of respondents do not require acceptance of grant terms, and another 10% (combined) presume acceptance if no reply is received, or, upon vesting/exercise of the award. It may be worth reviewing these practices, as the outcome of the ADP case suggests that putting time and attention into ensuring that employees do have access to and proactively accept the terms of their grants can make all the difference. Of equal importance is establishing web based processes that are clear and can provide evidence of the acceptance and associated process steps.  The bottom line is that web based grant acceptance can and does hold up in litigation when the right practices and documents are in place to evidence the steps the employee took to accept their award.

-Jenn