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Tina
Tina, Attorney
Category: California Employment Law
Satisfied Customers: 33167
Experience:  JD, 17 years experience & recognized by ABA for excellence in employment law.
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Ive been working in a tech startup for 9 months with 5% equity

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I've been working in a tech startup for 9 months with 5% equity and a small salary. The founder can't pay me anymore because he ran out of money/funding, so he offered to give me a major increase in equity (about 30%). He offered this to me via email, but he hasn't contacted our lawyer yet to make the change. Is it safe to continue working knowing he hasn't submitted the change to our lawyer?

Hello and welcome.

My name is XXXXX XXXXX my goal is to provide you with excellent service today. Before I can give you an accurate answer to your question, please provide the following additional information:

In which state do you work? Are you an employee or independent contractor for the company?

I look forward to assisting you as soon as I have received this information. Thank you.

Customer: replied 3 years ago.

I work in California. I think I'm an independent contractor since the founder never taxed me - but he planned on taxing me... he just never did

Hello again,

If he planned on withholding taxes that would typically mean the company intended to treat you as an employee, which is the default conclusion where there is a question whether a worker should be treated as an IC or employee. It is not up to the employer to choose and the company is likely violating the law by not withholding taxes. Similarly, they would be violating strict wage and hour laws by not paying you for the time you actually worked on the scheduled pay dates and you could file a complaint with the state labor board to initiate an investigation and the collection of wages owed to you.

If you do not wish to do that and you feel confident that you should be treated as an independent contractor, you could be paid sole through an equity share of the company whereas an employee must normally be paid at least minimum wage but can also have an equity share as part of their compensation package.

In either case, I would not typically continue to work without an agreement in writing as to your compensation package since the company is having financial difficulty and workers are often left holding the bag when start ups fail. It would not be prudent to continue to work without a written agreement regarding your compensation package.

I hope this helps clarify the situation for you. My goal is to provide you with excellent service – if you feel you have received anything less, please reply back as I am happy to address follow-up questions. Kindly rate my service when we have finished our communication. Thank you!

Tina

Customer: replied 3 years ago.

I'm fine with not getting paid - I believe in the product, and the founder has offered to give me equal shares in the company so I would basically be a co-founder. I just want to know if I can use the email he sent me with the equity increase offer as security that I will actually get the amount of shares he offered me in the email.

Hello again,

The e-mail can be used as evidence that you were to receive the equity share, but until the shares are actually issued or a formal agreement drawn up, there is some risk that the company will find a reason not to abide by the terms set out in the message.

I hope this helps clarify the situation for you. My goal is to provide you with excellent service – if you feel you have received anything less, please reply back as I am happy to address follow-up questions. Kindly rate my service when we have finished our communication. Thank you!

Tina

Customer: replied 3 years ago.

Could you give examples of some reasons how the company could not abide by the terms set out in the message?

If the bylaws require an approval process for issuing shares and it is later argued that the process had not been followed, so approval was never obtained, the company could argue that the sender of the message had no authority to make this promise and you should have known that. The company could argue that you did not perform some of the work they expected you to, so you were not entitled to the equity share. There are a myriad of arguments that could be made, so until the rights and obligations of both parties are clearly set out, there is risk in continuing to work without a formal contract in place.

I hope this helps clarify the situation for you. My goal is to provide you with excellent service – if you feel you have received anything less, please reply back as I am happy to address follow-up questions. Kindly rate my service when we have finished our communication. Thank you!

Tina

Tina and other California Employment Law Specialists are ready to help you

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Thanks again and all the best to you.

Tina

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