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Legal action against daytraderHQ puts employee share trading in the spotlight

The issue of employee trading in company shares is back in the news, following daytraderHQ’s announcement last week

that writs against the company had been lodged.

Two former daytraderHQ employees – one from Perth and the other from Adelaide – resigned in October 2001.

Last week, the company announced the men had lodged writs claiming the company’s internal trading policy prevented them from selling shares they had acquired in the company’s Initial Public Offering (IPO) in July 2000.

Company secretary Simon Storm would not comment on the details of the writs, but said the company’s policy applied to all employees and was not so draconian as to ban employees altogether from selling their shares.

Grahame Young, a Perth barrister, could not comment directly on daytraderHQ’s situation, but he said there were no specific laws dealing with employee share trading.

Mr Young pointed out that contracts of employment generally required employees

to adhere to a company’s policies and regulations.

He said when companies issued shares to their employees, whether through an IPO or as part of an employee share scheme, it was common for those shares to be issued under certain conditions – specifically, that there were restrictions on whether or when those shares could be sold.

Some conditions would apply only while a person works for the company, but others might extend beyond that.

“If, for example, a company has a policy that employees are not permitted to trade in shares during certain blackout periods – the four weeks leading up to a half-yearly or annual report, or something like that – that sort of policy will apply to them while they’re employees,” Mr Young said.

“But if (specific restrictions) are a condition of the issue of shares to them, that probably continues after their employment has ceased.”

Mr Young added, however, that the case for legitimate restrictions on share disposals could be weaker if employees paid full price for the shares.

Denis Ryan, the managing director of stockbroker DJ Carmichael, said he did not consider employees’ sales of small parcels of company stock to be a big issue, though it was true that share ownership was a way employees showed confidence in their company.

Mr Ryan suggested a nominal sale restriction period of 30 days from the receipt

of shares could be a reasonable compromise between conflicting obligations or, alternatively, the problem of who really controlled employees’ shares could be partly resolved by placing the shares in a nominee trust.

Partner at law firm Blake Dawson Waldron David Parker said that there would not normally be restrictions on employees trading in whatever shares they wanted to.

But where employees might have knowledge of market-sensitive information, employers may seek to prevent their employees from trading in the company’s stock.

Mr Parker said it was not common for employees to say they had been damaged because their company applied its policies; rather, workplace disputes usually arise where employees have apparently breached company policies.

"They wouldn’t normally take action where a company policy stopped them from doing something they wanted to do," Mr Parker said.



p See For the Record, page 40.

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