Negotiating Unvested RSUs After Departure: A Legal and Financial Perspective

When a former employee receives contact from their ex-company about repurchasing unvested restricted stock units (RSUs), it can be a complex situation with potential financial implications. In this article, we will explore why such situations arise and the legal and financial considerations involved. We will also discuss the importance of hiring a lawyer or CPA to ensure that the employee is not at financial risk.

Understanding the Company's Motivation

Companies often use RSUs and stock options as tools to motivate employees to remain with the company and contribute to its success. These equity awards typically vest over time, meaning the employee does not gain full ownership until a certain period has passed. Upon an employee's departure, the company may have a vested interest in repurchasing these unvested shares to simplify their own accounting or tax situation.

Often, the company may decide to repurchase the RSUs at a predetermined price, as in the scenario you described where the RSUs are repurchased at 0.01 USD after five years. From the company's perspective, this may be seen as a convenient way to clean up financial records and reduce the administrative burden of these outstanding equity awards.

The Employee's Perspective

From the employee's point of view, unvested RSUs represent a valuable asset that they have earned over time. If the company is offering to repurchase these RSUs for a nominal value, it can lead to significant financial loss. This is not only a cash loss but can also result in a substantial tax liability if the shares are later sold at a higher market value.

For example, if the RSUs were initially purchased for the exercise price and now the market value has significantly increased, selling the shares could result in a capital gain on which the employee would have to pay taxes. Additionally, if the shares are repurchased at a low price, the difference between the repurchase price and the market value upon vesting will also be subject to taxation.

Important Legal and Financial Considerations

Given the potential financial risks involved, it is crucial for the employee to seek professional advice from a lawyer or a CPA. These experts can help the employee understand the full implications of accepting or rejecting the repurchase offer.

A reputable lawyer or CPA can provide guidance on:

Reviewing the legal terms of the RSU agreement Estimating the potential tax liabilities Ensuring that the company's valuation is fair and reasonable Constructing an argument for a fairer repurchase price

Strategic Negotiation

The employee should not hesitate to be proactive and seek a fair deal. It is important to communicate clearly and assertively:

The potential financial risk involved The need for a sufficient amount to cover the liquidity of the RSUs and related tax obligations Reasons for taking this cautious approach

The employee should also emphasize that the goal is not to be uncooperative, but to take a reasonable and prudent approach to protect their financial interests. This approach can help maintain a professional relationship with the former employer, which could be beneficial in the long run.

Conclusion

In the context of negotiating unvested RSUs with a former company, it is essential to consider both the legal and financial implications carefully. Hiring a lawyer or CPA can provide the necessary guidance to ensure that the employee is not put at financial risk. It is also important to engage in strategic negotiations to achieve a fair outcome. Understanding the underlying motives of both the company and the employee can help in reaching a mutually beneficial resolution.

By taking a thoughtful and informed approach, the employee can safeguard their financial interests and maintain a positive professional relationship with their former employer.