Many employees know that their employer cannot fire them to avoid paying them their earned wages. What many employees may not know is that stock—whether vested or not—qualifies as wages under the right conditions. This means that if your employer fires you shortly before or after a vesting event because your employer does not want to let you exercise your options, you may have a legal claim for unlawful termination.
Terminations like these are becoming increasingly common, especially among technology workers. For instance, on October 29, 2022, the New York Times reported that Elon Musk intended to fire many of Twitter’s employees after his acquisition of the company. The twist? He fired them right before a November 1, 2022, date when many employee’s stock options vested.
Given the timing of these terminations, it is likely that they were solely motivated to prevent employees from vesting new stock and were illegal.
Vested Equity or Stock are Wages
California has a broad view of “wages.” “Wages” include “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” Labor Code § 200(a). Incentive compensation, such as bonuses, profit-sharing plans, and restricted stock grants, are also wages. Schachter v. Citigroup, Inc., 47 Cal. 4th 610, 618 (2009).
If your employer promises you stock, options, or other equity as part of you compensation, those items are wages. And when they vest, your employer cannot take them away from you without compensation.
What about Terminations Prior to Vesting?
In California, it is against the law to fire an employee to prevent them from accruing or vesting wages, including stock options and other equity rights. Courts have held that the decision to terminate an employee “in order to avoid paying him the commissions, vacation pay, and other amounts he had earned” violates the public policy of the state and is illegal. Gould v. Maryland Sound Indus., Inc. (1995) 31 CA4th 1137, 1147, 37 CR2d 718, 723.
Firing an employee shortly before vesting may also violate California law regulating how parties to a contract must treat each other if the employer intends the termination to prevent the employee solely from realizing benefits under the contract, such as additional stock vesting.
Finally, if your employer made oral promises of equity or stock provided you stayed with your employer for a certain amount of time and your employer fires you to avoid vesting, you likely have a claim to the amount of promised equity. Moncada v. W. Coast Quartz Corp., 221 Cal.App.4th 768, 777 (2014).
You Need Experienced Attorneys to Fight Your Employer
Stock option agreements are notoriously complex and hard to understand. If you have been terminated around the time your options were set to vest, or your company is not refusing to honor your right to equity, call King & Siegel today. We are well-equipped to help employees win back their ownership interest, back wages, and other compensation. Our attorneys graduated from top law schools and have successfully represented employees in equity and stock disputes concerning companies of all sizes.