Ex-Uber employees are being surprised by big tax bills

You have to read to paragraph #17 before you get the information the story is really about.

Uber delivered shares to its employees on the day of its IPO in May 2019, meaning employees would be taxed at the price of $45 a share. But the employees were restricted from selling their shares for six months, by which point the price had fallen to around $27 a share.

This definitely sucks for the employees. But it isn't really clear that Uber did anything wrong. In cases where there's an IPO pop, and employees want to hold on to the stock for a while, this can be good for employees, because more of their income happens via capital gains.

To me, the real lesson is that our tax code is stupid, because it treats "a share of stock that you are given on day X, but may not sell until day X+180" and "a share of stock that you are given on day X+180" in different ways, even though they seem exactly the same to the employee.

This seems... spurious. Granting IPO stocks on IPO day is beneficial if the stock goes up, and "detrimental" if the stock goes down from the initial price instead, which is what happened with Uber.

The article makes it look like Uber tried to short change employees, but if the stock had rocketed up, they would have saved employees a ton of money in taxes because the gain from IPO price to the price when the lock-up expired would have been taxed as capital gains.

They also make it looks like these people are all making pennies because the stock didn't do well, which we all know is obviously not the case (especially if they are engineers).

Side note: when people bash ISOs because they are evil or something, I just think of tax implications like this. This wouldn't happen if they were options instead of RSUs.

Is there any downside to joining that lawsuit if you qualify?

This story completely misses what the lawsuit is actually about. It isn't just a bunch of employees who are pissed that the stock went down.

Employees' RSU agreements stated that Uber would deliver their shares 6 months post-IPO. A few days before the IPO Uber decided to amend the agreement and accelerate the vesting, so shares would be available on IPO day itself.

Why did they do this? Uber is legally required to withhold taxes during a vesting event. The most common way to do this is to sell a percentage of the shares immediately on vest. This, however, increases the total number of shares in the market and depresses the stock price. To avoid this, Uber decided to pay for the taxes out of their own pocket and claim a percentage of the shares for themselves (basically a private stock buyback).

By moving the vest date up, Uber gambled on the fact that the stock price would be higher in 6 months, and the move would thus benefit both themselves (less out of pocket spend for withholding) and the employees (difference taxed as capital gains rather than regular income). Instead the opposite happened and both parties lost out. More importantly Uber reduced their own risk by locking down their total liability at the IPO date itself and exposed their employees to the whims of market fluctuations.

Thanks. The article initially read as if people had held their stock as if it was an investment and are mad they didn't sell to cover the tax bill sooner. After your explanation it is much clearer.

tl;dr Uber accelerated vesting of employee grants so that they happened during the lockout period. Also they could have proactively taken more out to cover taxes for the employee but chose instead to take the minimum out.