Stock option plans, which were previously intended for senior employees only, can now be bought by most employees in their own right.
The option to purchase enables employees to buy stock options in their company for a definitive or determinable price, under established criteria as agreed by the company's general meeting.
The practice of purchasing options must be contractual. The contract must specify:
- the relevant rules of the option;
- any stock acquisition warranties;
- the types and prices of available stock options;
- commission exemptions;
- applicable federal, state and local taxes;
- income tax reporting duties; and
- any rules on the purchase of foreign currency.
Profits from the purchase or sale of company stocks are exempt from social contribution taxes.
The plans offer no guarantee against losses resulting from fluctuations in share prices. The employee, upon paying and receiving the stocks, must accept the risks inherent in stock market trading.
The option of purchasing stock confers upon the employee a right of credit against the company. Any such contract must comply with the Commercial Code.
The option to purchase stocks allows for some future profit, but this should not affect the employee's contract of employment or the salary that he or she receives. As such, the legal relationship between the company and the employee stockholder and the instalments, rights and advantages acquired pursuant to a stock option plan remain distinct from the employment labour contract.
Generally, an employee's salary is regarded as the financial token offered by the company in a 'free and regular' manner. In light of this, it is reasonable to conclude that stock option plans are not part of an employee's salary. In addition, a stock option is neither a bonus (in which case it would be linked to the employee's performance) nor a gratuity (because it is not a payment agreed between the employee and employer, and because it involves random factors such as the company's worth on the market). To date there have been few rulings on the issue, but the courts do seem to agree that stock option plans should be regarded as separate from salary. In a recent case the Regional Court of Justice of São Paulo ruled that profits obtained through the sale of stocks cannot be considered to be part of an employee's salary (TRT 2ª R - proc RO 20010255561 - Sentence 20030145141 - 3ª Group - reporting judge Sergio Pinto Martins).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.