Good leaver and bad leaver rules for Leaving the Company
Good and bad leaver provisions classify why an employee left and attach different consequences to their equity. A good leaver, typically someone who resigns with notice, retires, or is made redundant, usually keeps their vested options and can exercise them within the standard window. A bad leaver, typically someone dismissed for cause or who breaches restrictive covenants, may lose vested options entirely, or the company may have the right to buy them back at the original strike price rather than fair value.
These definitions are set out in the plan or grant agreement and should be checked carefully, since the line between good and bad leaver categories can be drawn broadly by the company. Some plans also include a middle category, sometimes called an intermediate or neutral leaver, with its own treatment, another point worth checking against other instrument comparisons such as RSUs or phantom shares.
Summary of common outcomes
| Situation | Unvested options | Vested options |
|---|---|---|
| Resignation (good leaver) | Forfeited | Exercisable within window |
| Redundancy | Forfeited, sometimes with partial acceleration | Exercisable within window |
| Dismissal for cause (bad leaver) | Forfeited | May be forfeited or bought back at strike price |
| Death or long-term illness | Often accelerated in part | Exercisable, sometimes with extended window |
Practical steps for Leaving the Company
- Check the grant agreement for the exact leaver classification and its consequences.
- Confirm the exercise window length and its start date.
- Work out the cash needed to exercise, and the likely tax due, before the window closes.
- Ask the company in writing to confirm the number of vested options and the deadline, since informal verbal statements are not reliable.
Leaver terms are contractual and vary company by company. Reading the specific plan document is the only reliable way to know your position.
What departing staff usually want to know
- Do I automatically lose my options if I resign?
- You lose any unvested options immediately, but a good leaver usually keeps the right to exercise vested options within the exercise window.
- Can a company classify someone as a bad leaver unfairly?
- The classification depends on the wording of the plan and grant agreement. Disputes do happen, and employees who believe they have been misclassified should seek independent legal advice.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.