Can my employer cancel my vested ESOPs if I am terminated?

Question

I was terminated from my job and my employer says all my ESOPs, including vested ones, stand forfeited. Is this legal? I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

Can my employer cancel my vested ESOPs if I am terminated? is governed in India primarily by Companies Act 2013, Section 62, Indian Contract Act 1872, Section 23 and SEBI (Share Based Employee Benefits and Sweat Equity) Regulations 2021. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

ESOP rights are governed primarily by the specific ESOP scheme and grant letter, which must be consistent with the company's Articles of Association and applicable SEBI regulations for listed companies.

Generally, vested options that have not yet been exercised may lapse on termination as per the scheme's terms, but many schemes distinguish between termination for cause and termination without cause, giving more favourable treatment for the latter.

A forfeiture clause that is unreasonable, one-sided, or applied in a manner inconsistent with the scheme document can be challenged as void under Section 23 of the Contract Act for being opposed to public policy or as an unconscionable bargain.

If shares have already been allotted upon exercise of options before termination, those shares are the employee's property and cannot be unilaterally forfeited by the employer without a specific enforceable buy-back or forfeiture clause.

Disputes over ESOP forfeiture are typically pursued as breach of contract before a civil court, or through arbitration if the ESOP agreement contains an arbitration clause, rather than before labour forums.

What to do next: 1) Obtain and carefully read your ESOP grant letter and scheme document for forfeiture and termination clauses; 2) Distinguish between vested-but-unexercised options and already allotted shares to assess your rights; 3) Send a legal notice disputing forfeiture if the scheme terms do not support the employer's action; 4) Pursue civil suit or arbitration as per the dispute resolution clause in the ESOP agreement.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Companies Act 2013, Section 62 carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in this practice area.