Current BGH Case Law Facilitates the Use of Leaver Clauses

Leaver clauses play an important role in participation programs designed to motivate and retain executives by allowing them to share in economic success. In practice, participation is often closely linked to the manager’s operational activities, so that a right of repurchase by the other shareholders is provided for upon termination. Whether such regulations are permissible even in the absence of good cause had not yet been clarified by the highest court.

New Guidelines from the Federal Court of Justice

According to current case law, the Federal Court of Justice expressly recognizes that market-standard and economically comprehensible participation models can provide a factual justification for the repurchase of shares. The decisive factor is a comprehensive overall assessment that takes into account both the purpose of the participation and the manager’s involvement and actual influence. The BGH thus confirms the fundamental admissibility of such transfer-back clauses and strengthens freedom of contract in an area previously characterized by considerable uncertainty.

Building on its earlier decision from 2005, the BGH is further developing its case law and clarifying that while a free termination clause can in principle be regarded as contrary to public policy, it is justified if the participation merely serves to bind the manager to their function and does not convey an independent economic position. In its judgment of February 10, 2026, the BGH emphasizes that such a clause can be permissible if the manager’s participation is of only subordinate economic importance and its purpose ceases with the end of the operational activity. In this way, the Court makes it clear that leaver clauses are not automatically invalid, but must always be considered in the context of the specific participation model.

Separation of Validity from Valuation

Particularly noteworthy is the BGH’s finding that the question of the validity of a leaver clause must be separated from the question of the appropriateness of the repurchase price. Even if a clause is valid, the agreed purchase price may still be inappropriate and subject to a separate review. In addition, the BGH subjects the specific exercise of such options to independent control in order to prevent the manager’s legitimate interests from being violated. This differentiated approach gives companies more creative leeway on the one hand, but also protects the rights of the participating managers on the other.

Practical Implications for Companies and Managers

The current decision has practical consequences. Companies and, in particular, private equity investors gain significantly in planning certainty, as they can structure management equity participation more flexibly and design contractual repurchase rights more reliably. At the same time, the BGH clarifies that the design of such programs must continue to be carried out with care and that the economic background should be convincingly documented. The case law therefore opens up expanded scope for design without, however, leading to an unrestricted carte blanche. Companies can now bind managers more specifically to economic success, while at the same time a legally secured withdrawal from the participation remains possible when the operational activity ends.

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