Zynga to employees: Give back our stock or you'll be fired

Have you ever watched a mob?

A corporation is a group of people. Like all groups of people there can be a mix of the full spectrum of humanity in varying percentages. Go to a protest or a concert, witness how groups of people react, especially when they are told to do something that no one wants to do. Corporations are run by people but you should not think that they are somehow different from groups of people and that group psychology somehow doesn't come into play.

Stock options vest in the future if you are still working there. The idea is that it keeps you committed - otherwise everybody cashes in on the day after an IPO and walks, and it rewards people who were the reason for the success.

You can't leave and then expect to get unvested options = otherwise people would simply sign up for every startup, stay a month and move on - then come back years later when the company is a success and ask for their million dollars.

It's abused when companies deliberately fire people before the options vest - this is relatively rare, since any sane company knows that getting rid of all your talent is a rather short term option.

This is what Oracle did when they took over Sun - they fired almost all of the VPs before the deal so they would have no share. In their case it was more justified, these people hadn't contributed to Suns future (it didn't have one) and weren't the reason for the Oracle takeover - there was no reason why they should gain from Oracle being in charge when the music stopped.

We have two option clawback stories in six months or so. These actions erode the trust relationship between entrepreneurs and the technical talent on which they depend. The expectation that startups will honor the options they give to the talent they hire is part of the social contract of the community. Reneging on that expectation will make talent wary of taking on the immense risk of working for or founding startups.

What Zynga is doing is pretty repulsive, as I previously commented in a related thread (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.

Thanks for weighing in on this in such detail. Valuable insight.