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socrateaser
socrateaser, Lawyer
Category: California Employment Law
Satisfied Customers: 33907
Experience:  Retired (mostly)
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I and my colleagues have worked for 3 to 4 years without monetary

Customer Question

I and my colleagues have worked for 3 to 4 years without monetary compensation under the terms of a meeting wherein we all came to an agreement in terms of stock. A document that describes the stock was sent out. The company claims we did not do what we promised so are entitled to nothing if we leave. The company claims that the stock was actually stock options.

I would like to know the company compliance and employee rights laws for a Calif. corporation that may be used to prosecute a claim for stock-based or monetary compensation. Our employee levels are at the C-level and VP level.

Thank you in advance.
Bob
Submitted: 3 years ago.
Category: California Employment Law
Expert:  socrateaser replied 3 years ago.
California courts adhere to federal law under what is called the "economic realities test" to determine whether or not an employment relationship exists. Tony & Susan Alamo Found. v. Secretary of Labor, supra, 471 U.S. at 301, 105 S.Ct. at 1961.

Assuming that you were not merely a "volunteer:" someone laboring on behalf of the employer for personal pleasure or out of a sense of moral or charitable obligation, then you are an employee, and you are, at a minimum, entitled to minimum wage ($8.00 per hour, plus overtime) in exchange for your efforts.

This may seem to be a very small compensation, but over 3 years, it could add up to a substantial amount. It would also mean that the employer would have failed to remit FICA and medicare, unemployment, workers compensation, State Disability Insurance -- each of which carries with it, stupendous fines, some of which can be imposed personally on corporate officers and directors (including criminal prosecution), and which cannot be discharged in bankruptcy. So a finding by the IRS, Ca Employment Development Department or Ca Division of Labor Standards Enforcement of your status as an employee, could literally put the employer out of business.

You also have the option of attempting to prove in court your apparently oral contract with the employer that you would receive some specific amount of stock in exchange for your services rendered, or alternatively, try to prove that this was a joint venture, that you are a partner of the corporation, and that you are thus entitled to a proportionate share of any future profits generated by your partnership.

I realize that you are looking for some direct Labor Code section that guarantees you a share of the corporation. However, I am unaware of any such legal provision. Your dispute is principally a question of common law (judge-made law), and whether or not you are (1) a partner with the corporation entitled to a share of business profits, which could be evidenced by stock ownership, (2) an independent contractor entitled to the reasonable value of your services rendered, (3) an employee entitled to wages, and at least minimum wage, plus payroll taxes, with a right to convert those wages into stock under some agreement that you must prove.

And, the way that a person in your situation discovers his or her rights, is to hire a lawyer and file a lawsuit -- or, alternatively, complain to each of the relevant government agencies (IRS, EDD, DLSE), and let the government try to sort things out.

For a reputable employment rights attorney referral, see this link.

NOTICE: My goal here is to educate others about the law. I am always available to answer your follow-up questions after you click Accept – however, if you do not click Accept, the website gets paid, and I receive nothing. This is true, even if you are on a subscription plan. So please click Accept, so that I will be able to continue to provide this service for others in the future.


And, if you need to contact me again, please put my user id on the title line of your question (“ToCustomerrdquo;), and the system will send me an alert. Thanks!


socrateaser, Lawyer
Satisfied Customers: 33907
Experience: Retired (mostly)
socrateaser and other California Employment Law Specialists are ready to help you
Customer: replied 3 years ago.
Thank you again for your outstanding response which cuts right to the heart of the issue.

The company has paid none of the required California FICA or insurances.

Expert:  socrateaser replied 3 years ago.
You're welcome and good luck.
socrateaser, Lawyer
Satisfied Customers: 33907
Experience: Retired (mostly)
socrateaser and other California Employment Law Specialists are ready to help you
Customer: replied 3 years ago.
My next question involves two issues;

1) Position Description / Performance Appraisal
2) Employee Stock Option Reporting Requirements

I ask these in the context of actions the company took after informing them that I was going to leave and asking for a written clarification of my employment stock compensation.

Are there requirements for reporting the terms of a stock option plan? This includes telling employees that such a plan exists in the first place?

Can a company tell an employee, after the fact, that their compensation from prior years is going to be graded on new criteria?

It would seem that attempting to retroactively apply new criterion would be a corporate ethics issue. I hope to find some general business practice requirements that limit what an employer can do in terms of appraisals and specify requirement for initiating and reporting the existance of ESO plans.

*** Please tell me how to increase payment for add-on's or if I should post such add-ons as a new question. I am new to this.
Expert:  socrateaser replied 3 years ago.
Are there requirements for reporting the terms of a stock option plan? This includes telling employees that such a plan exists in the first place?

A: As an employee, a stock option plan may be deemed to be a "qualified plan" under the federal Employee Retirement Income Security Act (ERISA). Assuming that the ESO is qualified, then the failure to provide the options under a written "summary plan description" would violate ERISA and permit you to sue for breach of trust, or alternatively, complain to the U.S. Department of Labor -- Employee Benefits Security Administration. Toll-free hotline: 1.866.444.EBSA (3272).

However, not every ESO is necessarily an ERISA-qualified plan. The issue is whether or not the ESO was intended to provide pension benefits or direct ownership outside of a pension. If the former, then you may have a separate claim under federal law. If the latter, then you are SOL on this one.

Can a company tell an employee, after the fact, that their compensation from prior years is going to be graded on new criteria?

A: No. Compensation is vested to the employee as earned. Unilaterally modifying the deal is either a breach of contract or tortious conversion (civil theft).

Wages earned between the 1st and 15th of the month must be paid between the 16th and 26th; wages earned between the 16th and the end of the month must be paid between the 1st and 10th of the following month. Labor Code § 204. The penalty for late payment is $100 for the first offense and $200 for each subsequent offense.

HOWEVER, an employee may accept as partial compensation shares of restricted stock or stock options that do not vest until after a specified period of employment (e.g., 2 years). Such contingent, nonvested rights are nonetheless "wages" for Labor Code purposes. Schachter v. Citigroup, Inc. (2009) 47 Cal.4th 610, 619.

Depending on the terms of the compensation plan, termination of employment before the end of the vesting period may forfeit restricted stock or stock options. In that event, the employee has no right to cash compensation for the value of the forfeited stock. Schachter v. Citigroup, Inc., supra, 47 Cal.4th at 621-622, 101 (employee's agreement to receive part of his compensation in form of restricted stock acknowledged that his resignation or termination for cause before the end of the 2-year vesting period would result in forfeiture of the restricted stock).

Parting the legaleze, the employer is trying to take advantage of this loophole by claiming you have unvested options, so if you quit, you get nothing. The problem is that there apparently was never any agreement as to when the options would vest. If true, then that would make the agreement "illusory." And, an illusory contract is void/unenforceable, because at least one party is not bound to perform. Money Store Inv. Corp. v Southern Cal. Bank, (2002) 98 CA4th 722, 728; Scottsdale Ins. Co. v Essex Ins. Co. (2002) 98 CA4th 86, 94.

Someone has apparently advised the employer about the loophole, and your response is to show that either the contract was never for options to begin with, or that even if it was, there was no vesting date, so the contract is unenforceable and you are entitled to wages for your labor.

*** Please tell me how to increase payment for add-on's or if I should post such add-ons as a new question. I am new to this.


A: You can continue posting Q's in this thread. And, FYI, you appear to have paid twice already (not including the bonus you paid). I suspect that this was not your intent -- and if my suspicion is correct, then once you're satisfied with my answer to your latest question, you can, if you wish, ignore any further payment requests. Or, you can ask customer service for a refund of your second Accept and then decide whether or not you want to pay after I've satisfactorily answered your question.

Hope this helps.

socrateaser, Lawyer
Satisfied Customers: 33907
Experience: Retired (mostly)
socrateaser and other California Employment Law Specialists are ready to help you
Customer: replied 3 years ago.
Thank you for clarifying the payment terms. I am happy to pay for the two question given the great value you have provided.

My position is Chief Technologist. As such at add significant fundamental value in terms of scientific methods, algorithms, expertise, and my status (humbly) as an expert in my field and unique in the company.

I would assume that patents that I have filed (two are quite good ones I could market myself) and assigned to the company can be claimed under the same breach of contract and ( in my layperson's interpretation fraudulent manner. )

I expect I will have additional questions over the next days and weeks.

Have a great weekend.
Bob
Expert:  socrateaser replied 3 years ago.
I would assume that patents that I have filed (two are quite good ones I could market myself) and assigned to the company can be claimed under the same breach of contract and ( in my layperson's interpretation fraudulent manner. )

A: For a general discussion of employee patent rights, see this link. Specifically, if you were to show that you are an employee, then assuming no written agreement you would own the patent, but if you assigned your rights under a written agreement, then you would have to show that it was obtained by fraud/deception, so that the court would void it or require you be paid damages.

There is still some question as to whether or not you are in fact an employee (probably), independent contractor (very doubtful), or a joint venture partner (possibly).

If you held the title Chief Technologist and there is any formal resolution of the corporation's board or other documentation supporting this (even a business card paid for by the employer), then you're an employee, and we can ignore the other legal possibilities.

Hope this helps (off to lunch).


And, if you need to contact me again, please put my user id on the title line of your question (“ToCustomerrdquo;), and the system will send me an alert. Thanks!


Customer: replied 3 years ago.
In the days since we last communicated a key issue has come to light. Kindly change any dates if this will be public information in the future.

On Sep 18th 2009, three of us CEO, VPBusiness, and CTO(me) had a meeting which resulted in a capitalization sheet identifying our compensation in terms of stock. VPBusiness sent out the cap-sheet to all of us via email.

The VPBusiness and I have independently written what occured at this meeting and we are in 100% agreement that the CEO approved the cap-sheet and that it was ok to send it out.

On Oct 24th, 2009, without my knowledge there was a big argument initiated by CEO with VPBusiness concerning the cap sheet. CEO said that VPBusiness should not have sent out the cap-sheet without his approval. Neither CEO nor VP Business told me that the cap-sheet was in dispute.

I operated on the belief that all parties were in complete agreement. I did work activities demanded by the CEO outside of my principle purpose and reason for being at the company.

Only last week, the CEO told me that he considers the Sep 18th agreement and cap-sheet invalid because he himself did not send it out and that the VPBusiness acted improperly.

Moreover, he said that I did not do what my principle purpose of being at the company was despite the fact that I was working on all of the other issues he demanded.

I (not being a lawyer) allege minimally willful-negligence in that he easily could have told me that there was a dispute with the cap-sheet and my compensation terms.

The CEO is doing everything he can to blame the VPBusiness and avoid any responsibility.

I would assume that the CEO cannot do this.

Please advise. I have retained an attorney but I have not yet gotten this far in explaining to her the overall situation so I would very much appreciate your education of the possible legal issues.

Thank you!
Bob



Expert:  socrateaser replied 3 years ago.
Hi again.

First, re changing dates, and public disclosure, etc. I have absolutely no control over anything posted in this forum, once it is posted. So, if you have a concern about public disclosure, please contact customer service and ask them to lock your post for privacy purposes. I have never observed them refusing such a request.

Obviously, you will have to open a new question after that, because once locked, I can't read our previous conversation, either.

Second, one thing about a case in the hypothetical, vis-a-vis in court, is that the court rules on the record of admissible evidence, and not what parties or witnesses "know" to be true. So, when discussing coverations between yourself and others, or things that others have said or done, remember, that it's not what you know that counts in court -- it's what you can prooove with credible and admissible evidence. A lot of evidence is not credible and/or inadmissible. Consequently, when you tell me that the CEO or VP said or did this or that, or issued a particular notice, etc., remember that unless that document bears the signature of the person or his/her authorized agent, then you may not be able to prove that the document is authentic, i.e., what it's purported to be.

That said, assuming you can prove that the VP issued the notice within the scope of employment, and that the notice was reasonably within the scope of the VP's authority, then as a corporate officer, that issuance is a valid operative act, upon which you could rely by continuing to work, because the VP is an "apparent agent" of the corporation, whose authority is manifested to others by his/her appointment as VP.

Cutting to the chase, it's all about proving that the cap-sheet was issued by the VP. If yes, and you continued to work after that date, then that's a contract by promissory estoppel (promise agreed to by unilateral performance of the promisee). And, you are entitled to enforce that contract against the employer/corproation.

Hope this helps.


And, if you need to contact me again, please put my user id on the title line of your question (“ToCustomerrdquo;), and the system will send me an alert. Thanks!


socrateaser, Lawyer
Satisfied Customers: 33907
Experience: Retired (mostly)
socrateaser and other California Employment Law Specialists are ready to help you
Customer: replied 3 years ago.
Thank you. I believe through email dialog both ways that it is clear and unambiguous that the VP acted both within his authority and as a company agent and therefore that "promissory estoppel" as you described is enforceable.

However, please tell me about the Oct 24th meeting wherein the CEO clearly knew about the cap-sheet, knew the importance and purpose, but did nothing to correct the document or anyone's perception of the document. I understand that this point may be moot given promissory estoppel, however would it not further provide some usable evidence that the CEO was negligent?
Expert:  socrateaser replied 3 years ago.
Tort/negligence damages are not permitted in a breach of employment contract dispute under California law. Foley v. Interactive Data Corp., 47 Cal. 3d 654, 254 Cal. Rptr. 211, 765 P.2d 373 (Cal. 1988). So this is more than just moot -- it's not a cause of action under your facts.

The CEO's acquiesence/failure to act to correct/rescind/revoke the cap sheet after its release is what is known as an "adoptive admission," which means that when a person fails to correct the record in circumstances where he or she should act, that person will be held to have adopted the record as true.

Example: Husband and Wife at restaurant table. Husband says, we want the prime rib. Wife is silent. Server brings two prime rib dinners. Wife says, I didn't order that and I'm not paying for it. Restaurant sues and puts wife on witness stand, asking whether or not she was silent when her husband ordered the prime rib. Wife says, yes. Proponent attorney asks the court to admit the wife's silence as an adoptive admision. Court will admit, because if wife didn't want the prime rib, then she should have said so at the time.

Hope this helps.
Customer: replied 3 years ago.
Thank you! XXXXX feel is the sufficient argument I need. You have been enormously helpful in educating me and pointing me in the right direction in dealing with this issue. Have a great weekend!
Expert:  socrateaser replied 3 years ago.
You too. Good luck!

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