Stock Option Plans And Arbitration: Is It Possible Under Brazilian Law?

1. Introduction

   Following the dynamism of the economic relations and the increasing practice of the stock markets, it became quite common throughout the corporative world the offering of options to employees to purchase shares of the employing company under pre-established price and conditions, the so-called stock option plans.

   Another increasing trend in the corporative world, notably in Brazil, is the use of arbitration as a method for conflicts resolution instead of the judiciary system. The agility, flexibility and efficiency with which conflicts are resolved throughout arbitration proceedings are indeed very attractive elements.

   In this context, a question commonly made is whether employing companies in Brazil can attach arbitration clauses to its stock option plans. Is it possible to join both mechanisms under the Brazilian legislation?

   The answer depends on the given circumstances, as analyzed below.

2. 'Arbitrability' in Brazil - Disposable Patrimonial Rights

   Arbitration in Brazil is recognized as an appropriate and legitimate method for dispute resolution, provided for in Federal Law no. 9.307/96 (Brazilian Arbitration Act), which is based on the UNCITRAL (United Nations Commission on International Trade Law) model law.

   In 2001, the constitutionality of the Brazilian Arbitration Act was confirmed by Brazilian Supreme Court and the use of arbitration was ruled constitutional, as a way of private resolution of disputes and waiving of state jurisdiction, except to the extent that support for enforcement is needed and/or nullity of the arbitration proceeding is claimed, hypothesis in which the state jurisdiction can apply.

   According to article 1 of the Brazilian Arbitration Act, Arbitration can only apply for resolution of disputes involving the so-called "freely disposable patrimonial rights":

   "Art. 1. Persons capable of entering into contracts may settle through arbitration disputes related to freely disposable patrimonial rights."

   In this regard, the Brazilian jurist Carlos Alberto Carmona, one of the co-authors of the Brazilian Arbitration Act, explains that:

   "It is said that a right is disposable when it may or may not be exercised freely by its owner, without having any cogent rule imposing the compliance with such principle, under penalty of the committed act being considered null or void. Thus, those properties which are in a position to be freely sold or negotiated are transferable ("disponire", from Latin: to dispose of, to put in many places, to regulate), as they are clear, whereas the seller has full juridical capacity to do so." (In Arbitragem e processo, 2nd ed. São Paulo: Atlas, 2004, p. 56).

   As one can see, in short, for a right to be considered disposable under the Brazilian law, it is necessary that (i) there is no mandatory (cogent) rule that imposes the compliance with such principle; and (ii) the owner of the right is in juridical conditions to exercise such right. Without both these requirements, a right is not freely disposable and, therefore, cannot be...