Can a company force employees to exchange vested shares for non-vested? Specifically in an acquisition, can the company force an employee to sign new agreements (as condition of employment) exchanging vested shares for non-vested shares of the acquiring co?
The answer to this question, like so many things in life, is that it’s complicated. It’s impossible to know for sure what rights the company or the employee have without seeing all of the contracts entered into between them.
But we can review some concepts at a higher level instead:
- Can the company take away the acceleration feature on stock options it’s already granted?
In the vast majority of situations the answer is no. The company’s ability to take away an acceleration feature would have to be included in the grant paperwork (or sometimes, by reference, in the stock plan). It is, technically speaking, possible for a company to reserve this right. But what good would a contract be if one party had unlimited power to retract it’s promises? I certainly wouldn’t want to sign that contract. So while it’s technically possible from a contracting standpoint, it’s both bad business and potentially unenforceable under the law in most states.
- Can the company “force” an employee to give up acceleration?
Again, simply put, no. Once a company has granted an employee acceleration in a signed agreement and issued the shares, it is bound by the terms of the grant agreement. As just discussed, a unilateral right to “take away” or “force” an employee to give up acceleration would be very unlikely.
- What if the company says the only way to keep your job is to give up your acceleration?
Outside of the acquisition context, which we’ll talk about in a second, an employer cannot make this type of ultimatum. If an employer asks you to give up a right that you already have, they have to offer you something else in return. For example, the employer might offer you additional shares or offer to accelerate a portion of your unvested shares in exchange for giving up your single trigger acceleration. The company cannot offer you something that you already have, though. In other words, the company cannot offer you the job you already have in exchange for giving up a right that you already have.
- So what about in the acquisition context?
In an acquisition, you no longer have a job to bargain with. When a company gets acquired, in most cases it ceases to exist. That means your position at the company ceases to exist. The acquirer may negotiate to keep some of the company’s employees — usually those with key technical expertise or knowhow. If you’re one of those employees, you’re now essentially negotiating a new employment agreement with the acquiring company. So while they can’t take away your acceleration (remember, it’s currently the stock from the company we’re talking about) the acquirer can make it a condition of your new employment contract that you give up your acceleration rights.
To make the example super simple, it could become a choice between:
A. No job but full stock ownership in the selling company, which in turn results in a percentage of the company’s purchase price (which could be cash or stock in the acquiring company);
B. A new job with the acquiring company and whatever deal you make with them regarding your shares, such as exchanging all or some portion of vested shares of the company for unvested shares of the acquiring company.
Keep in mind, that the employee has some negotiating power as well. How much will depend on how desirable of an employee he or she is, but these negotiations should be with the acquirer, not the company.
What’s important to remember is that every situation is unique and will be governed by the specific contracts between the parties. That’s why it’s always a good idea to get advice from your own lawyer.
If any of the concepts I mentioned today are unfamiliar, check out Paysa’s guide to equity comp for more info!