In Shah v. Skillz, Inc., the California Court of Appeal held that stock options are not wages.

A stock option is a contractual right to buy company stock at a certain price regardless of whether the stock price increases. If the value of the stock increases, the option is more attractive since the person can buy the stock at a lower price and immediately sell the stock at a higher price. Labor Code section 200, defines “wages,” requires that “all amounts” paid as wages be “fixed or ascertained.”

In Shah v. Skillz, Inc., stock options were given to the employee, and the value of the stock increased. But before the employee exercised the options (i.e., before he bought the higher-priced stock at the lower-option price), he was terminated. The company terminated the employee’s stock options upon the employee’s separation. The employee sued, claiming, in part, he was deprived

1 of “wages” in the form of stock options when the company extinguished his options when he was terminated. The Court of Appeal disagreed, ruling that stock options are not wages because their value is contingent on external factors and speculative—that is, stock options are not amounts that are fixed or ascertained to become “wages” as defined by the Labor Code.

As a consequence of this ruling, California employers may lawfully terminate stock options at the time of separation without fear of waiting time penalties. However, this case does not change the rule that vested restricted stock/units cannot be forfeited upon separation.

If you are a California employer who is considering terminating an employee who has stock options or, if you are an employee with stock options who believes you may soon be terminated, discuss the matter with business legal counsel to formulate the best strategy for you.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.