Employee Stock Option Schemes (“ESOPs”) are structured by companies such that the employees are granted options which is a right that vests over a period of time. Upon vesting the employee can ‘exercise’ and shares are allotted by the company (or transferred by the Trust, if the ESOP is administered by a Trust).
The question is, can the vesting be paused / stopped for reasons such as sabbatical, unauthorized leave, garden leave, maternity leave etc.?
Sabbaticals, garden leave is usually a program / policy that a company would have and they spell out treatment of full pay, partial pay, benefits and the like.
Unauthorized leave is usually treated as mis-conduct and is treated per company’s policies.
However, maternity leave is a statutory right and the pay and other benefits cannot be stopped or paused during this period.
The United Nations Convention on the Elimination of all forms of Discrimination Against Women (“UNCEDAW“), which India is a signatory to, mandates under Article 11 that State Parties are required to ensure that the female employees would have a right to pay or comparable benefits without loss of employment, seniority or social allowances.
India being a signatory to the UNCEDAW is bound under the obligation of pacta sund servanda Article 26 and Article 18 providing for the obligation not to defeat the object and purpose of a treaty of the Vienna Convention on the Law of Treaties (“VCLT”).
Vesting of ESOP during Maternity Leave
The vesting of options stays in effect as long as the employee remains in the employment of the company. A female employee’s employment, during maternity leave, cannot be terminated in accordance with Section 12 of the Maternity Benefit Act 1981 and it shall be unlawful for her employer to discharge or dismiss her during or on account of such absence.
The said position has been upheld in the case of Neera Mathur v Life Insurance Corporation of India where it was held that the employment of a female employee shall be protected and it would be wrongful on part of the employer to terminate the employment of the female employee during the period of maternity leave. The same position was upheld in the case of Bharti Gupta (Mrs.) v. Rail India Technical and Economical Services Limited and Ors wherein it was held that Section 12 of the Act underscores the independent and inflexible nature of the liability to mandate that no woman employee can be dismissed on account of her pregnancy. It is the right of the employee to get medical benefits since such grant of maternity benefit is according to the mandate of the law.
Section 5 of the Maternity Benefit Act 1981 states that female employees cannot be denied the emoluments such as continuation of employment and payment of wages on account of being on maternity leave. This position has been upheld by the Supreme Court in the case of Municipal Corporation of Delhi v. Female Workers (Muster Roll) and Ors.
ESOP taxation is treated as a perquisite. Ie. at the time of exercise, the difference to exercise price and fair market value is taxed as perquisite. Shares when sold are subject to capital gains tax.
An inference can be drawn from the above, that vesting of ESOP cannot be suspended, paused during maternity leave.
Author: Mr. Spandan Saxena
 AIR 1992 SC 392
 2005 VII AD (Delhi) 435
 AIR 2000 SC 1274.