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Uber Lawsuit Alleges Employees Were Misled On Equity Compensation (techcrunch.com)
An Uber employee has filed a lawsuit accusing the company of misleading employees about their equity compensation. Uber "devised a fraudulent scheme to recruit highly sought software engineers," according to the case. From a report on TechCrunch: The lawsuit claims that Uber promised a more tax favorable type of options at the time employees were hired and then later changed the plan. The case alleges that at least 100 others on the Uber staff may have been impacted and that these stock options can potentially be worth "hundreds of millions of dollars" to employees and also save Uber "millions of dollars of tax deductions." The plaintiff, Lenza McElrath, who was previously a lawyer and is now an engineer at Uber, says that he was under the impression that all his shares could be treated as ISOs, which do not require an upfront tax bill. He said he was later given a notice about a change to the exercisability schedule, that effectively turned most of his shares into NSOs, which are taxed at the time they are exercised. While many startups allow their shares to become exercisable over the course of a four-year vesting agreement, Uber has share agreements that become exercisable after just six months. In other words, Uber employees can buy the stock they are entitled to shortly after they gain employment.
A company that behaves in an unethical manner in the marketplace also deceives employees.
Who would have thought about that.
Now, I would get that they exercize their share options a lot sooner than most. So, I would think there would be a catch.
Uber lost 800 mil this quarter. They're projected to lose 2.6 billion next year. And that's not even accounting for cities turning on them and employees wanting proper compensation.
Uber is fucked. So go ahead, fight for your worthless equity.
You're saying that a company that is infamous for skirting the law and screwing people over is skirting the law and screwing people over?! How unpredictable! ;)
Anons need not reply. Questions end with a question mark.
Equity is the biggest scam there is
If you work for someone trustworthy, equity is a gamble that can pay of bigly. Particularly ISOs subject to an 83(b) election.
You're saying that a company that is infamous for skirting the law and screwing people over is skirting the law and screwing people over?! How unpredictable! ;)
But were they infamous for that when they were hiring the early-hire developers in question? Or did they only develop the reputation AFTER the developers had built the platform and the executives used it in ways that screwed over the "line workers".
Hindsight is 20/20. How were the engineers hired to build the infrastructure to know, at the time, that they were going to be shafted in a way even the early-hire shafting executives of most Silicon Valley startups would never dare? This strikes at the fundamental draw for engineer hiring for startups. If it becomes common practice, the startup-driven innovation cycle could collapse. Uber needs a big, public, spanking over this, to nip it in the bud.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
I must be misunderstanding something. "Does not require an upfront tax bill", to me, sounds exactly like "taxed at the time they are exercised".
You do indeed misunderstand. Let me mansplain it: If you exercise an ISO, you now own the stock, but you don't pay tax until you sell it. So if you hold onto it for at least a year after you exercise it, you can then sell it and only pay tax at the low long-term capital gains rate. An NSO is considered like cash income at the time it is exercised, and is immediately taxable. If you hold onto it, and the stock price declines, you can get royally screwed because you still owe tax at the exercise price, not the sale price. During the dot-com implosion, this bankrupted a lot of ex-tech employees that were slammed with a huge tax bill at the same time they were laid off and holding worthless stock.
Short answer: ISOs are always better than NSOs.
So few software engineers seem to know about early exercise and 83(b) that I have ended up having to make it part of my negotiation demands -- successfully, but it's more painful as the lawyers need to get involved.
In one case, they insisted I meet with the company's lawyer (from a firm, not on staff) just so the lawyer could tell me about the "risks" of early exercise and 83(b) -- of course with the disclaimer that "we are the companies lawyer, not your lawyer and we recommend you consult a qualified tax attorney and accountant". I assume the intent was to give the company a defense if I later sued them with "I'm just a country programmer, I didn't know anything about those fancy techniques like early exercise and filing my paperwork correctly to take advantage of the 83(b) option so I'm suing you for [additional taxes and penalties I owe because I filed my paperwork with the IRS three days too late and didn't realize it mattered] or [the value of the restricted shares that the company held back and repurchased from me at what I paid because I didn't understand what the repurchase right was in shares I was not yet vested in, I thought I owned them] or (less likely as it's hard to get blood out of a stone) [the amount of tax benefit I would have received, but did not, from being able to write off my investment in the now worthless shares].
I suppose the lawyer thing was a backlash from all the idiots whining about taxes on their unrealized gains back in the .com bust. (Which amused me -- don't people research anything? That risk wasn't hidden and was well understood.)
Have you checked the small print? You might have a lot less influence than you think if you own a different class of shares to the founders, who can issue more whenever they feel like it.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."