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Sometimes you just have to sue to enforce a contract and your rights. Many employees either don't realize this or they don't have the stomach for it. If you fin
by mmaunder 15y ago
Sometimes you just have to sue to enforce a contract and your rights. Many employees either don't realize this or they don't have the stomach for it. If you find yourself in this position, my advice is to play the game and see it through.
1. Don't resign, don't capitulate and hire a good lawyer immediately. If you don't have the cashflow, but are defending a huge pile of stock about to IPO you'll probably find a lawyer that will defer payment.
2. Start documenting everything including making timestamped notes of what was said to you verbally.
Then play it out. Read all documentation the company has given you and fully understand it. They usually have to fire you for cause for you to lose your options, so figure out what the angle is they're using and make sure they don't have cause. Be 100% professional and non-confrontational, but ask the hard questions when you need to. DO NOT treat the company's staff (including your boss) or their legal team as your own legal counsel. They will try to give you "good advice" or intimidate you. They will claim things are "standard". Get your own info and use your own lawyer.
Often simply retaining counsel lets the opposing team know you're serious and professional, and worst case it will up any settlement.
PS: I'm an exec, not an employee, so technically I'm the guy on the other side of the org chart that Micah (see below) is describing. But assuming the report is accurate, this is unacceptable behavior and I'd like to see more employees who take a risk on startups getting what they deserve and enforcing their rights.
- joshAg 15y agoas an executive, do you think that zynga's executive team gave any thought to the bad press this might generate and the talent that this might scare away? From my perspective, this sort of thing scares me away from companies, because they might do it again in the future.
- cheald 15y agoHonestly? I think this is the execs trying to grab as much stock as possible for themselves pre-IPO, so they can dump it and run. There's no way that this actually turns out to be a net positive for the Company. It's going to make it significantly harder to hire actual talent, it's going to cause morale decay and revolt from within the company, and it erodes Zynga's brand. Literally the only benefit here is that the execs end up with more stock when the IPO happens.
- samstave 15y ago>I think this is the execs trying to grab as much stock as possible for themselves pre-IPO, so they can dump it and run. This is EXACTLY what is happening - anyone who thinks otherwise is deluded or plain stupid. When Lockheed bought Savi technology, the RFID company, there were massive stock bonuses given out to the the Savi execs just prior to the sale. Then they told all the employees who had been there less than 18 months they would get NOTHING for the shares they were hired on with as incentive. All the other employees were given 15% of what the company had been claiming the street price of the options were. PLUS they held some significant % of the stock value in an escrow account for some number of months should there be a legal backlash and Lockheed were sues - they were to use the escrow share money on that case... Pincus is a very very VERY shady character. Yet another IPO that I would never touch purely on principal alone. Who wants to be Goldman will be taking this IPO?
- qx 15y ago"Pincus is a very very VERY shady character" Any examples of this? Not that I don't believe you, but just curious
- keeran 15y agohttp://blogs.sfweekly.com/thesnitch/2010/09/zynga_pincus_copy_games.php http://blogs.sfweekly.com/thesnitch/2010/09/zynga_pincus_cop... Tells his team to steal game ideas, makes millions in the process then shafts the people who made it happen for him. Would love to hear from someone who can paint him in a better light than the horrible individual I have in mind at the moment.
- kamaal 15y agoThis isn't surprising, not everybody in the game is for building something or for changing the world or for passion. Someone is here only for the money multiplication factor. Sales, advertising, marketing and your usual MBA subjects are all about that. That is, not to care about what you are selling, but to create an illusion which gives an opportunity to amplify that seed investment. That is the time to cash on and move on.
- johngalt 15y agoIt's not like Zynga will have another IPO in the future, or will need to promise future employees equity. Precisely why "trust" should never be a part of an equity negotiation. When millions are on the table people will do whatever they can get away with. Zynga doesn't want another "google chef", but they took full advantage of the "google chef" when promising equity to early employees.
- pavel_lishin 15y ago> It's not like Zynga will have another IPO in the future, or will need to promise future employees equity. No, but they probably will be promising employees something - and now, everyone knows that unless that promise is in writing, in an iron-clad contract peered over by Hell's best lawyers, it's worthless at best.
- fab13n 15y agoIndeed, they will only have one IPO. But the PR backlash can seriously affect it, if it's made clear to everyone that the execs are crooks, and that they'll never be able to hire talents again.
- ChuckMcM 15y agoThe poster child here is Groupon (GRPN) and while the poor choices of their executives did negatively affect the IPO they are still (11/9) trading above their IPO price of $20 ($24.50 when I glanced).
- fab13n 15y agoI don't think that Groupon execs are widely perceived as crooks, whereas Zynga's ones are more than hard to defend here. Moreover, Zynga execs' move was likely intended to increase the total worth of their shares; if they manage to claw 20% more shares, but destroy 30% of each share's value, they've hurt themselves even in the short term (figures made up for illustration, obviously).
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- kamaal 15y agoThey don't bother much. For most these people, who are basically sales and operation guys. They are made believe in their MBA classes that if they have a brand name and atleast one successful product they will never need any technical talent to run the company. And they can sell anything every after with operations tuning they teach them during their MBA classes. And that they can virtually sell anything by marketing, advertising and brand positioning. And that engineers and technical staff is merely a commodity which just needs to be used like raw material to convert it money later. They are basically in for cashing on pre-IPO gold rush. For me this is more than sufficient to be cautious before working at any start up again.
- thezilch 15y agoIANAL. Considering the employees are going to be challenging California's "at will" employment laws and the fact that the charges against the employees is performance based, how likely is #2 to have a fighting chance?
- kls 15y agoThey have a strong argument that the options deprived them of real salary that they would have earned elsewhere. It will be interesting though. The reality though is they just lost every bit of talent they ever gained. The good talent is already in talks with other organizations I can guarantee you, I personally would be looking for an exit and no one I mean no one worth their salt is going to sign up with them now.
- ChuckMcM 15y ago" ... and no one I mean no one worth their salt is going to sign up with them now." I think this is probably a bit extreme (I realize you may be employing hyperbole for effect but still) Zynga is a considered a "hot" IPO candidate and as such you will find folks who recognize that not everyone is a super star. Some talent might be more attracted to Zynga because they 'deal with the dead wood' in a proactive way. And pre-IPO options are better than post-IPO options. It will certainly be interesting to see if it affects their ability to recruit and retain talent. I can only hope that some of the HR people escape and can share the results with others. Too often there isn't any really definitive data post event if it was a net positive or loss for the company. This is why I think there is a lot of hand waving in the HR space, hard to get real numbers.
- kls 15y agoI think this is probably a bit extreme (I realize you may be employing hyperbole for effect but still) Yes some but I don't think much, IT employment is very much based on trends, in the 70-80's the hot place to work was Bell Labs or DEC, in the 90-00's it was Google. If you ruin your name you loose the A-Listers interest and everyone in tech fashions themselves A-Listers. So when this happens you have to rely on finding talent that has not proven itself yet or settling for the "it's just a job crowd". The biggest draw to pre-IPO is stock and the possibility of fortunes. To me and probably quite a few others, this is a shot across the bow that they will limit the participation in the fortunes part, which kills the primary reason people join pre-IPO start-ups. I would not underestimate the gravity of this action especially in this hot of a market.
- Androsynth 15y agoDo they have a legal footing to stand on? The way I read it is: 'We consider you overpaid for the job you are doing and we no longer wish to keep you around at that compensation level'. That is a valid reason to fire someone in CA isn't it?
- kls 15y agoIT is not a valid reason to reclaim unvested stock, those are looked at like current compensation when termination is unjust. You cant terminate someone just to unvest them. That being said, I always draw a line through and contract that says that I loose vesting on termination, and change it to all options become instantly vested on termination. IF they want to negotiate as to when the options will be awarded to ensure that I am going to do a good job before I get options that is one thing, but I never allow for a termination to unvest me after the fact.
- prostoalex 15y agocontract that says that I loose vesting on termination, and change it to all options become instantly vested on termination Curious which companies do that. Are you talking about 83(b) election, or were you really able to convince companies to instantly vest upon termination?
- kls 15y agoI rewrite the contract so that all options that have been granted but not vested, vest on termination. I was bite by this one and learned my lesson, I have also been bit by dilution, you pick these things up along the way. If they do not agree to vest on termination then we go back to salary negotiation or I walk. To me if they can terminate you and snatch back millions, it's just to big of a carrot to do so, as well that's all it is, is just a carrot if they can at any time deprive you of it. So basicly I write it to secure what a good company wants, A pair of handcuffs chaining me to a position, but I ensure that once I have completed my time, they can't deprive me of that rightfully earned compensation, I do this by adding a clause that all awards vest on termination, nothing complex not a bunch of legalize just all options vest and the clause overrides any and all other verbiage related to the matter in any other section of the contract.
- ChuckMcM 15y agoI agree with this statement, and I think Zynga's actions are at best unethical. It would be interesting to know the facts from someone in this situation but I also expect that such folks should not be blabbing to folks other than their lawyer. My interpretation of the story was that they were asking for folks who had stock that was not vested which is to say part of some future vesting pool, to give that up their right to that stock. So if you gave someone 100K shares over 4 years, and they had been there 2 years, 50K was vested and 50k yet to vest, they are asking that you give back the 50k that have yet to vest. This would be different than Skype's 'clawback' clause, and it would be slightly less onerous than canceling vested but not yet exercised options. The article also suggests that choices were made based on some measure of value (and implied performance). I have seen folks who are doing ok work, but its not at the level that they are being compensated, that puts you in a tight spot. Few, if any, folks are open to a restructuring of their compensation package in a downward way (which is what Zynga is proposing it would seem). In California at least you simply ask them to leave (and the article suggested that the choice was 'accept this new lower compensation package, or leave, your choice.') Frankly I think it would be less painful on the company oversall if they just laid off the folks they felt they had made the compensation error on. I don't see anything good coming out of this approach for the company, and I recognize they may think they are being compassionate by not firing people who, except for the size of their option grant, are doing ok. Google's innovation here is something they call a 'Google Stock Unit' (GSU) (which is not an 'option' it is more like restricted stock) where the ratio of GSU to actual stock is fixed at the time it vests by a perfomance multiplier. That way they can offer a hot shot person 2500 shares of 'restricted' stock (market value of 1.25M$) which vests in four chunks of 625 'units' a year, and if you didn't meet your goal that year your multiplier could be less than 1.0 even 0. So they wouldn't actually have to give it to you if you weren't a hot shot inside of Google. To be fair the multiplier could, in theory, be greater than 1.0 too. The cleverness of that scheme is that the company could 'tune' the compensation of someone dynamically. I'm guessing Zynga might be wishing they could do something similar for ISO type options.
- grellas 15y agoWhat Zynga is doing is pretty repulsive, as I previously commented in a related thread (http://news.ycombinator.com/item?id=3219437 http://news.ycombinator.com/item?id=3219437), but it is not accurate to say that "[t]hey have to fire you for cause for you to lose your options." The overwhelming majority of employees at startups sign documentation acknowledging that their employment is at will and can be terminated at any time by either party for any reason, with or without cause. In relatively rare cases involving founders or high-placed executives, the company will sign contracts stating that, though the employment is at-will (i.e., can be terminated at any time for any reason without liability), the employee will get accelerated vesting of one sort or another in the event of a termination "without cause" or a resignation for "good reason." "Cause" is usually defined as willful failure or refusal to perform duties that continues after notice and an opportunity to cure, misappropriation or misuse of company trade secrets, commission of a felony or other action involving moral turpitude, etc. and "good reason" is typically defined as material reduction in compensation or duties, relocation to a remote area, etc. If you have an employment agreement that provides for such acceleration, then you are clearly protected against the Zynga-style threats described in this piece. If you do not, then you generally are not on firm legal footing but still may have some fighting chances. What are those? If you can argue that an otherwise permissible at-will firing becomes impermissible because it is animated by discriminatory animus (race, sex, age, etc.), and you belong to a protected class, you could argue that the threatened firing is illegal and would subject the company to damages (which, of course, would include the value of the unvested stock that would otherwise have vested had the company not acted illegally to terminate your employment). If you can argue that the ground of termination violates public policy, this might be a separate basis for claiming that the firing is illegal, notwithstanding that the employment relationship is at-will. If you can argue that the company has given you implied promises that your employment would be for a certain duration, this also might take it out of the at-will category and give you fighting chances. If you can argue that you were induced by fraudulent misrepresentations, e.g., to leave an existing employment based on the promise of equity compensation, or if the at-will language in your agreement is defectively implemented, or if any other ground might exist by which you can legally claim you got cheated or had some promise made to you breached, all this too can take this out of the pure at-will category as well and give you a basis for leverage. To sum up, "cause" is not usually needed by an employer to terminate employment and recapture unvested equity. But you also by no means automatically lose just because your employment is at will. This is a complex area. With a lot at stake, it pays to get good legal advice to see if you can find a good angle by which to protect yourself. A good legal case depends on legal rules that support it and, even more important, on good facts that motivate judges, juries, and anyone else looking at the case to want to go in a certain direction. Here, Zynga is providing all the good facts an employee needs to motivate people to want to slap them upside the head. That by itself is not enough. But if you find even one legal hook that gives you a sound basis upon which to attack what they are doing, then you can stand and fight. It is not easy, but sometimes you have no choice.
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- jcromartie 15y agoWhy would someone want to work for a company where you have to sue to keep your job, though? That's the sad part. You could fight for your job, but then there would undoubtably be permanent and serious bad vibes in both directions.
- lambda 15y ago> Sometimes you just have to sue to enforce a contract and your rights. If you can sue. At my last job, they made me sign a binding arbitration agreement as a condition of being employed. I needed the job, so I couldn't play hardball and refuse.