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TexLaw
TexLaw, Lawyer
Category: Employment Law
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Experience:  Contracts, Wrongful termination and discrimination
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Employer promised stock ownership, now is reneging and then

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Employer promised stock ownership, now is reneging and then wrongfully terminated me.

I left my job to go to work for a new start-up restaurant. The funds to start the new company were not immediately available and I agreed to defer my pay until the funds came in. There were delays and it took 7 months before i went on the payroll and was paid at the rate of $42,000 per year. The deferred pay was not given but I was promised $75,000 per year salary and "sweat equity" so i trusted I would be fairly compensated. Critical mistakes were made and the first restaurant closed. Equipment was transferred to a new location and opened again and the employer finally put the promise of the stock in writing but did not give me any legal documents showing my ownership. Then, he stated I had to agree to work for the company for a minimum of 3 years to get the stock as consideration. I stated I have already given consideration for my hard work (80 hours per week, deferred compensation, etc). He then turned on me by telling me the company had financial problems and he had to cut my salary by 40%. I told him he was constructively terminating me and said no but if I would sign a full release he would not deny my unemployment.

I believe that he never had any intention of giving me stock, paying me $75,000 or paying the deferred wages but was just using me for cheap labor during the start up of the restaurant. Clearly he knew I could not work for the 40% pay cut but created an agreement that required me to work at low rate for 3 years. I quit and filed for unemployment, he opposed it but they gave me my unemployment because the pay cut was unreasonable.

I now want to sue him for my back wages and compensation for the stock and wrongful termination. Please explain to me the nature of and the type of claims I have given these facts. Do I have valid claims against him?
Hi,

Thank you for your question.

You do have a valid claim against him for failing to pay you as promised and possibly for failing to give you the equity as promised.

You have stated that he put the promise to provide you with equity in writing. Do you have a copy of this writing?

Was there any other writing that could be considered to contain contract terms outlining your claim, or was the agreement verbal (in the beginning)?

What was your job position?

How many hours a week did you work?

I look forward to hearing back from you.
Customer: replied 3 years ago.

Thanks, XXXXX XXXXX early formation of the company and throughout my time there the promise of the equity was verbal and was also implied by the level of my responsibilities and the plans for me as the company grew. I was hired away from a higher paying management job to take this position based upon these promises and the representations made about the investment dollars going into the company - it was represented to be the next Chipotle and the investors behind Smash Burger were also involved. Smash Burger is a rapidly growing chain of gourmet burger restaurants. I was the original and only employee at the beginning and was to be the main guy due to my age, ability, experience and work ethic. I generally worked at least 70 hours per week and conducted myself as an owner with a whatever it took attitude. Many times over 80 hours per week. While I believed my trust in him and the representations were justifiably, he did acknowledge the promise of 5% equity in the company in an email.


 


 

Thank you for your response.

You have a lawsuit against him for breach of contract and fraud. You likely also have a lawsuit against him for violation of the Federal Labor Standards Act. Finally, you have a claim for breach of partnership (complementary to the breach of contract claim) which could lead to a claim for a share of past profits.

This is not the type of claim that I would advise you to attempt to handle on your own. These claims are complex, as is the fact pattern you have described, and an experienced local employment lawyer should be used to prosecute your claim for you. It is likely that you would be able to find an attorney to take this case on contingency, as the FLSA portion of your claim allows for recovery of attorney's fees from the Defendant.

Unfortunately, I am not allowed by the website rules to refer you to a specific attorney, but there are several well respected employment law firms in Denver that would be well suited to take your case.

Please let me know if you have any further questions. Please also kindly consider rating my answer positively so that I am compensated by the website for my work on your question. Rating positively does not cause an additional charge and does not prevent us from further discussing your questions.

Best Regards,
ZDN
Customer: replied 3 years ago.

Thanks, XXXXX XXXXX my beliefs based on just the basic facts that I have stated. Last questions, all of the detailed evidence, emails, conduct, statements from other people tell the story of his pattern of deceit but like anyone committing fraudulent schemes, they tend to put as little as possible in writing and so its not like a specific written contract but rather implied contract where the court would have to make a fraud/contract determination based upon the actors. For example, he gave attorneys, suppliers and marketing people equity in exchange for services, therefore it is logical that he made the same promise to me? Is a jury allowed to draw these inferences and look at the story rather than the form he puts things in?


 


Also, the company has negative equity now but it had perceived or expected value as the investors were excited about the new company. Over 1 million dollars was sold to investors at the rate of $120,000 for 5%. Had I had access to the equity back then, the chances of selling the stake was very good. Now, its worthless to me so I want to be paid for its past rather than its current value. Do I have a valid argument, otherwise, it may not make sense to sue over the equity that is currently worthless?


 


Finally, the company has no assets so even with a judgment, I still lose even the wage claim if the company has no money and cannot force the owner to pay for the company's judgment - is that correct? However, if he has committed fraud in connection with the wage and equity claim or if it is determined that he wrongfully terminated me, can the corporate veil be pierced and sue him personally? He is a millionaire so he has plenty of assets.

Q: Is a jury allowed to draw these inferences and look at the story rather than the form he puts things in?

A: Yes, provided that you jump through the legal hoops necessary (i.e., develop the evidence you spoke of through documents and witness testimony) to show that there is a basis for an implied contract in the summary judgment phase.

Q: Now, its worthless to me so I want to be paid for its past rather than its current value. Do I have a valid argument, otherwise, it may not make sense to sue over the equity that is currently worthless?

A: This is a very good question and is not easily answered. In fact, it will likely be a central issue in your case (i.e., the valuation of your damages). Although your argument would develop significantly as the case progresses, I believe the starting point would be that you are due the value of the equity at the time it was supposed to be paid, rather than at the current point when it does not have value.

Q: Finally, the company has no assets so even with a judgment, I still lose even the wage claim if the company has no money and cannot force the owner to pay for the company's judgment - is that correct?

A: This depends. You may have standing to sue him directly rather than as a corporation. This will depend on a very close analysis of the facts, but I will assume that your attorney would likely be interested in suing him individually and forcing him to prove that he is entitled to a corporate shield for this kind of fraud. If he is entitled to the corporate shield, this may still be breached through a piercing allegation.

Q: However, if he has committed fraud in connection with the wage and equity claim or if it is determined that he wrongfully terminated me, can the corporate veil be pierced and sue him personally?

A: You've done your homework. Piercing the corporate veil is a theory available to assert individual liability against a shareholder of a corporation under a limited set of circumstances. Your attorney will need to attempt to develop this sort of liability against the owner by conducting a forensic examination of the company's books. Often times, if you can get this argument past summary judgment it will draw a settlement of the case, as the exposure to personal liability is very risky in a fraud case (where punitive damages are available).
TexLaw and 3 other Employment Law Specialists are ready to help you
Customer: replied 3 years ago.

Thanks, that was a very thorough and detailed answer. Have a nice weekend!

You are welcome. I'm glad to be of service. Please let me know if there is any other information I can provide you.

Best Regards,
ZDN