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California Court of Appeals: Stock Options are NOT Wages

22 May

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Update Applicable to:Effective date
All employersSee details below


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


Resources

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This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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