The Luxembourg District Court took recently a decision (26 January 2024) in a dispute between an individual and a company where the question was to determine whether, following his resignation, he was to be qualified as a good or bad leaver.

The classification had an impact on repurchase price of the shares he held in the company.

The plaintiff was employed by the company (part of a financial services group) since 2010.

Over time, he acquired non-voting shares in the company. In 2021, he resigned and requested the repurchase of his shares.

The company initially offered to repurchase a certain number of shares at a certain price each as part of a general shareholder buyback, which the plaintiff accepted.

However, for the remaining shares, the company classified the plaintiff’s resignation as a “bad leaver event” and offered to repurchase them at the initial acquisition price. The plaintiff disputed this, arguing his resignation was a “good leaver event” under the company’s articles of association.

The central issue was the interpretation of “termination” in the company’s articles of association, which define “good leaver event” and “bad leaver event”.

A “good leaver event” for an employee shareholder includes “the termination of his/her contract… for another reason than the gross negligence or serious misconduct”. A “bad leaver event” was defined as termination for a reason other than a “good leaver event”.

The Court found that the term “termination” could not be exclusively limited to dismissal. It emphasized that the French version of company’s articles, translating “termination” as (“cessation de son contrat de travail”) clearly supports a broader interpretation encompassing all forms of employment cessation, unless due to gross or serious misconduct.

The Court also noted that the Company’s subsequent amendment of its articles in 2022 to explicitly exclude resignation from “good leaver events” did not retroactively change the prior intent. It reasoned that if such an exclusion was always intended, it would have been clearly stated in the earlier articles, especially given similar provisions in other group companies’ shareholder agreements.

The Court rejected the Company’s argument that the allocation committee had discretionary power to classify the event, stating that the committee’s power related to authorizing share transfers under restrictions, not to defining “good leaver” or “bad leaver” events.

Under the circumstances, the Court decided that the plaintiff’s resignation was to be considered as a “good leaver” event.

 This judgment highlights the critical importance of clear and unambiguous contractual definitions, particularly for “good leaver” and “bad leaver” clauses.