What happened?

On April 8, 2024, in a win for California employers, the California Court of Appeal held that stock options are not wages in Shah v. Skillz, Inc.

What are the details?

Background

• In 2015, Shah joined Skillz, a mobile gaming firm, accepting stock options with a vesting schedule instead of a higher salary. The contract stated that Shah had three months to exercise vested options if terminated without cause, but options would expire immediately if terminated for cause.

• Shah was eventually fired for cause due to a violation of the company’s confidential information policy discovered during an investigation. The employee decided to sue.

The Courts Decision

• The court’s decision addressed a critical issue: whether stock options, whose value can fluctuate, should be classified as “wages” under the California Labor Code.

• It determined that “Stock options do not constitute wages under the conventional understanding within the California Labor Code due to their contingent value and speculative nature.” (Shah v. Skillz Inc., p. 8).

Conclusion

• California employers may lawfully terminate stock options at the time of separation without fear of waiting time penalties.

For a breakdown of the case click here.

For a breakdown of Stock options with the case click here.

Business Considerations

• For tech companies or any employers in environments of rapid growth and fierce competition, this ruling provides significant relief and opens new avenues for structuring compensation packages
• Employers should review and update their compensation practices and agreements to ensure that they comply with the legal standards.
• Employers should consult with an attorney regarding the creation or update of their compensation practices and agreements.

Source References

• California Court exempts stock options from “Wages” classification (Nixon Peabody)
• Court Of Appeal Holds Stock Options Are Not Wages, But Damages Need Not Be Measured At The Time Of Breach (Allen Matkins Leck Gamble Mallory & Natsis LLP.)
• Stock Options are Not Wages Under the California Labor Code (Fox Rothschild LLP)

Resources

• Gautam Shah v. Skillz Inc.
• California Labor Code section 200

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