California Stock Option & Equity Compensation Disputes
When an employer fails to provide promised equity, terminates an employee shortly before vesting, disputes the terms of an option grant, or refuses to honor an equity agreement, the financial consequences can be significant.
We represent California employees and executives in disputes involving stock options, RSUs, promised equity, vesting, bonuses, and other forms of incentive compensation.
Were You Promised Stock Options That You Never Received?
One recurring problem arises when a company promises equity during recruiting or hiring but never completes the grant.
For example, you may have:
California Courts Have Recognized Claims Based on Promised Stock Options
In Alexander v. Codemasters Group Ltd. (2002) 104 Cal.App.4th 129, a California Court of Appeal considered an executive's claim that his employer had promised him stock options but failed to provide them.
The employer argued that there was no enforceable agreement because the parties had not reached agreement concerning certain vesting terms. The Court of Appeal rejected the employer's attempt to dispose of the claim on summary judgment (motion to dismiss). It concluded that factual issues remained concerning what the parties had actually agreed to and whether their agreement was sufficiently definite to enforce.
The case illustrates an important point: A company may not necessarily escape an equity promise simply because every detail of the stock-option arrangement was never reduced to a final agreement. Whether an enforceable agreement exists depends on the communications, documents, conduct of the parties, and terms actually agreed upon.
What exactly did the company promise?
The answer may require looking beyond a single document.
Potentially important evidence can include:
“The Board Never Approved It” Does Not Necessarily End the Inquiry
Employees are sometimes told:“The board never approved your options, so you never had them.”
That fact may be important, but it should not automatically end the analysis. The legal question may involve what the company promised, who made the promise, whether the parties reached an agreement, whether the employee relied on the promise, what remained to be decided, and why the company failed to complete the grant.
Likewise, the fact that a grant was never entered into an equity-management platform does not by itself answer whether the employee has a legal claim arising from an earlier promise.
Equity Disputes Can Become Particularly Important After Termination
Many employees do not discover a problem with their equity until their employment ends.
That is often when the employee learns that:
An employee who may have claims for wrongful termination, retaliation, discrimination, unpaid compensation, or breach of contract may also have a substantial dispute concerning equity compensation.
What Can a Stock Option or Equity Claim Be Worth?
The value of an equity dispute can vary dramatically. A claim involving options in an early-stage private company presents different valuation issues from a dispute involving publicly traded shares or RSUs.
Relevant questions can include:
In substantial equity cases, valuation can be just as important as establishing liability.
We represent California employees and executives in disputes involving stock options, RSUs, promised equity, vesting, bonuses, and other forms of incentive compensation.
Were You Promised Stock Options That You Never Received?
One recurring problem arises when a company promises equity during recruiting or hiring but never completes the grant.
For example, you may have:
- negotiated stock options as part of accepting the position;
- received an offer letter referring to an equity grant;
- been promised a specific number of shares or options;
- accepted a lower salary because of the promised equity;
- received emails or messages confirming the promised grant;
- repeatedly been told that the paperwork or board approval was coming; or
- discovered after termination that the options were never formally issued.
California Courts Have Recognized Claims Based on Promised Stock Options
In Alexander v. Codemasters Group Ltd. (2002) 104 Cal.App.4th 129, a California Court of Appeal considered an executive's claim that his employer had promised him stock options but failed to provide them.
The employer argued that there was no enforceable agreement because the parties had not reached agreement concerning certain vesting terms. The Court of Appeal rejected the employer's attempt to dispose of the claim on summary judgment (motion to dismiss). It concluded that factual issues remained concerning what the parties had actually agreed to and whether their agreement was sufficiently definite to enforce.
The case illustrates an important point: A company may not necessarily escape an equity promise simply because every detail of the stock-option arrangement was never reduced to a final agreement. Whether an enforceable agreement exists depends on the communications, documents, conduct of the parties, and terms actually agreed upon.
What exactly did the company promise?
The answer may require looking beyond a single document.
Potentially important evidence can include:
- offer letters;
- employment agreements;
- equity incentive plans;
- stock-option agreements;
- RSU agreements;
- grant notices;
- recruiting emails;
- text messages and Slack communications;
- communications with founders or executives;
- compensation summaries;
- cap-table or equity-management records;
- board approvals and corporate records;
- performance reviews;
- termination documents; and
- communications concerning vesting or exercise rights.
“The Board Never Approved It” Does Not Necessarily End the Inquiry
Employees are sometimes told:“The board never approved your options, so you never had them.”
That fact may be important, but it should not automatically end the analysis. The legal question may involve what the company promised, who made the promise, whether the parties reached an agreement, whether the employee relied on the promise, what remained to be decided, and why the company failed to complete the grant.
Likewise, the fact that a grant was never entered into an equity-management platform does not by itself answer whether the employee has a legal claim arising from an earlier promise.
Equity Disputes Can Become Particularly Important After Termination
Many employees do not discover a problem with their equity until their employment ends.
That is often when the employee learns that:
- a promised grant was never issued;
- the company claims fewer shares vested than expected;
- options supposedly expired;
- an upcoming vesting event will not occur;
- the company disputes an acceleration provision; or
- the employee and employer disagree about the effective termination date.
An employee who may have claims for wrongful termination, retaliation, discrimination, unpaid compensation, or breach of contract may also have a substantial dispute concerning equity compensation.
What Can a Stock Option or Equity Claim Be Worth?
The value of an equity dispute can vary dramatically. A claim involving options in an early-stage private company presents different valuation issues from a dispute involving publicly traded shares or RSUs.
Relevant questions can include:
- How many shares or units are disputed?
- What was the exercise price?
- When should the equity have vested?
- What was the company's value at the relevant time?
- Was there a financing round, acquisition, IPO, or other liquidity event?
- Could the employee actually have exercised the options?
- What would have happened to the equity absent the employer's alleged breach?
- What damages can be established without speculation?
In substantial equity cases, valuation can be just as important as establishing liability.