Laid off with no equity, as promised

January 4, 2007 12:37 PM

I've just been laid off by my employer, small tech start-up, and a few fishy things linger in the air that I'm looking for guidance on. The first is that I was promised equity come Jan. 1 in exchange for being paid slave wages for half of this year. I have this promise on paper. After being laid off, I'm told I'm no longer eligible.

Secondly, I never signed any sort of employment agreement or IRS form whatsoever. No W-2, no W-9, nothing. Was I ever even officially employed? What's my wisest recourse here?

posted by Pinwheel to law & government (15 comments total)

IANAL, but I suspect (based on my past experiences) that you're just as liable for not signing an employment agreement and filing with the IRS as your employer is. I imagine you were being paid without taxes being collected. Even if your employer didn't report those wages, you're still required to.

As far as the equity, I had the same thing happen to me. Unless you had an employment contract that in some way stipulated you'd get this equity regardless of whether you remained employed, I don't think you have much traction there.

Sorry.
posted by jcummings1974 at 12:44 PM on January 4, 2007

IANAL or a tax accountant, but I'm fairly sure that it is the employer's responsibility to handle their side of the tax reporting and payment. The IRS even has a hotline that employees can use to report tax fraud.

The problem with startups is that they are usually just scraping by. If they dump you, you are screwed and don't really have any recourse. Even if you have a legal recourse, it is probably too expensive to be worth pursuing. Even if you could sue your old company for free and win, they probably wouldn't have any more cash to pay damages with.

This is why you should never take reduced wages to work for a startup, unless you are one of the founders and close to the finance people. (this isn't directed at Pinwheel, but others who are considering working for startups. Don't do it unless you will be paid significantly more than in a more traditional job situation)
posted by b1tr0t at 12:58 PM on January 4, 2007

Yes, that's very good advice. My advice to other is similar situations: the company must pay standard wages, either in cash or in equity up front.
posted by Pinwheel at 1:00 PM on January 4, 2007

Yeah, you are probably screwed. You know how sometimes, a couple will promise that one of them will work to pay for the other's degree, and then they'll switch? And then as soon as the first person has the degree, they take off and leave the other with four years of work and nothing to show for it? Your contract is the workplace equivalent of this situation, on paper or not, and your bosses most likely never intended to make good on their promise in the first place.

Unfortunately, I can't offer you any advice on legal recourse, because I don't think you have any. From now on, never agree to do X now for Y in the non-immediate future, unless the deal with X is so good that you won't feel ripped off if Y does not happen. Employers know that you probably can't afford a lawsuit, so their promises are often empty.
posted by vorfeed at 1:01 PM on January 4, 2007

Some (hopefully) useful advice:

The best thing to do is stay on good terms with your fomer employer. Ask them if they know of any other employment opportunities that you could look into. If you have a good relationship with senior management (board of directors, CEO, top HR people), they may be willing and able to help you out. If you don't already have a good relationship with them, don't expect anything more than a cold shoulder.
posted by b1tr0t at 1:09 PM on January 4, 2007

You were orally promised equity come Jan 1? Were you there Jan. 1? If so, and perhaps even if not, you may have a valid oral employment contract. How much money is at stake? You may need a lawyer to help out and the fees could quickly eat up all the money, and of course then you can't use this business as a reference. Further, word gets around. If they failed to withhold your taxes you need to at least square this issue with them, especially as it relates to social security. I would contact them about the this stuff and if you don't get relief at least take an initial consultation with an employment lawyer.
posted by caddis at 1:32 PM on January 4, 2007

You were orally promised equity come Jan 1?

No. He says that he has it on paper.
posted by solid-one-love at 1:35 PM on January 4, 2007

I do have that promise on paper, and I was technically employed on Jan. 1.
posted by Pinwheel at 1:51 PM on January 4, 2007

Promissory estoppel covers things like this. You need to talk to a lawyer, if that wasn't obvious already. From my understanding (at least the business law classes I have taken), you should at least see a lawyer about this. Employment law is complex, but you were paid with the understanding of equity on a certain date.

You being fired from that date does not necessarily mean you were handed your ass back. I would think at least you would be entitled to the proportion of equity that corresponds to your time worked there. Otherwise companies could royally screw everyone with promises of pay and then fire them right before they get it.

A law consultation doesn't cost, or at least mine haven't, and a lawyer with more relevant facts than us can determine whether it would be in your best interests to fight this. From what you've said, I would say it would not be a waste of time to at least see a lawyer. If you're lucky a nice letterhead from a law office explaining the situation will lead to a quick out of court settlement.
posted by geoff. at 2:00 PM on January 4, 2007

Do you work in Portland, or on the Washington side of the state line? If you're in Washington, would you mind e-mailing the address in my profile? I've got some questions/thoughts that I'd rather not go into here.
posted by croutonsupafreak at 2:05 PM on January 4, 2007

Pinwheel don't forget the human element in all this. If you're still maintaining a relationship with some of the higher ups then you maybe able to leverage your position with them in some way.

Imagine meeting where you would say, "Listen guys, I understand things are tight right now, but I really feel slighted by getting dropped before I would have gotten this extra cash. Is there anything you can do for me?"

If you come to the table and let drop some of your concerns - their promise on paper, the legality of your employment, the unfairness of it all - then maybe they will realize that you could actually cause a lot of trouble for them and then decide to play ball. You may not get all the money you're due, but it may be a lot easier than getting a lawyer and taking that route.

I was let go in much the same situation a few years ago and was able to strong arm a significant increase in my severance because I agreed not to make trouble once I was gone...
posted by wfrgms at 5:00 PM on January 4, 2007

Will the equity be *worth* anything once you get it, if they're laying people off already and engaging in dodgy labor practises?
posted by SpecialK at 6:35 PM on January 4, 2007

I second Geoff's answer, although this is based on a mere semester of contract law. Find a lawyer who deals with such matters, it will be well worth your time and money.
posted by woil at 12:05 AM on January 5, 2007

I have to agree - is it worth fighting to get your equity from them? You could be spending money on a lawyer, only to get a worthless chunk of a company that's about to fold any way.
posted by antifuse at 6:41 AM on January 5, 2007

You might want to clear up whether you were an employee or a contractor. Did you fill out an I-9? Did your checks include a deduction for taxes? If not you were probably a contractor and should receive a 1099 at the end of the month. Being a contractor completely explains the lack of paperwork. After all, you don't file tax forms to have a handyman come over, do you?

Be aware that they are legally obligated to mail you either a 1099 or a w2 by January 31. I realize this seems like a tangent to you, but tax time is closer than you think. If they fail to send you documentation, call the IRS.
posted by ilsa at 10:36 AM on January 5, 2007