Can Your Employer Take Away Your Vested Stock Options After Termination?

Getting fired or laid off can be a challenging experience, but it's important to understand your rights concerning your stock options if you are vested in them. In most cases, your employer cannot take away your vested stock options upon termination. However, there are important exceptions and details you should be aware of. This article will explore the rules surrounding vested stock options and what actions you can take to protect your interests.

The Basics of Vested Stock Options

Once stock options become vested, they become your personal property, allowing you to hold, sell, or exercise them even after leaving the company. However, it's crucial to review your stock plan documents and any grant agreements to understand any specific conditions and restrictions.

What Happens to Unvested Options?

Unvested stock options will typically revert to the pool and be granted to future employees. This is a standard practice in many companies to manage their equity investments effectively. However, as an employee, it's important to be aware that you won't retain these unvested options after termination.

Exercising Vested Stock Options

When you are vested, you are vested. You can exercise your vested options, but there are important time limits and procedures to follow. Typically, you have 90 days after termination to exercise your options. Failure to do so may result in their expiration and forfeiture.

The cost of exercising vested options can be substantial due to the potential for high taxation. If you cannot afford to exercise or are risk-averse, there is non-recourse financing available, such as the ESO Fund, to help you fund the exercise of your options.

Employer Policies Vary

The treatment of vested and unvested stock options can vary widely depending on the terms of your stock option plan and the reason for termination. Some employers may specify that all options and restricted stock units (RSUs) vest in the event of a layoff, as seen with some Fortune 100 companies. However, this is not a common policy, and most companies adhere to the standard vesting schedule and policies outlined in their stock option agreements.

Real-World Experiences

David Deans, a victim of a layoff, shares his experience: 'At the same time I had to exercise my vested options triggering a huge tax bill for that year. I would have gladly held on to the options indefinitely since the stock continued to rise.' His scenario is a common one, emphasizing the need to understand the tax implications of exercising vested options.

Fortune 100 Companies and Exceptional Policies

David's former employer and his wife's employer stand out for their policies. His wife’s employer has a rare policy that grants all options and RSUs to employees who are laid off. This generous policy is uncommon in the industry, and it highlights the importance of understanding your employer's specific policies and benefits.

Key Considerations for Protecting Your Stock Options

Review your stock plan documents and grant agreements thoroughly. Understand the vesting schedule for your options and the impact of termination on your vested and unvested options. Seek legal advice if you have any concerns or need clarification. Be aware of the time limits for exercising your options and the tax implications. Explore non-recourse financing options if you are unable to exercise your options.

In conclusion, while your vested stock options generally cannot be taken away after termination, it's crucial to be proactive and informed. Understanding the specific terms of your stock option plan and preparing for the potential need to exercise your options can help you maintain control over your financial situation during and after a termination.