Interesting. My options agreement has a clause called "Waiver of Statutory Information Rights" in which I waive my inspection rights of the company stock ledger, a list of its stockholders, and its other books and records, and the books and records of subsidiaries of the Company provided under Section 220 of General Corporation Law of Delaware until the first sale of common stock to the public.
Is this waiver clause enforceable?
EDIT: Let this be a lesson folks! Always have an attorney review your options grant contract.
"Thank you so much. I appreciate that you took the time to find this and reply to me."
Happy to help. This stuff gets super-complicated quickly. My understanding, and this comes mainly from passing conversations with other lawyers, is that it's a grey area.
If they expressed a waiver clearly and expressly, as it appears here, they may have a good case that you have no inspection rights.
There is also the question of whether you have to expressly consent or not, or if, after the fact, they handed you something that said "oh, by the way, congrats on waiving your rights"
FWIW, although I am not a lawyer, I do not read that the same way you do, to say that the waiver is unenforceable. Rather, it says that the corporation cannot unilaterally take away the right of inspection. That does not mean you cannot give up the right in exchange for something. In fact it strongly implies that you can as long as the waiver is "clearly and affirmatively expressed."
'Clearly and affirmatively expressed' meaning in terse legalese, 6 point font, on page 16, section 2, sub section iii of document #8 of your HR welcome package.
This seems to say that only persons holding shares can make a request under section 220. So if you aren't vested in any of your shares, you aren't holding any, and therefore can't make this request? IANAL (obviously).
There's a difference between unvested shares and options.
For unvested shares, you buy the shares and pay for them immediately, but the company has the right to buy them back at cost if you leave before a certain duration of employment (which is when you "vest").
For options "you aren't holding any", you don't own any shares until you exercise your options.
Clearly this is an area in which an attorney would be helpful. IANAL.
> For unvested shares, you buy the shares and pay for them immediately, but the company has the right to buy them back at cost if you leave before a certain duration of employment (which is when you "vest").
I guess what we have at Google is different. I don't give them any money, and the shares vest over time. (Might be just a misuse of terminology to use `vest' here?)
You were given a certain number of GOOG shares that vest over a 4 year period. That is your vesting schedule. You typically do not "buy" your RSUs as an employee. They are granted to you and thus are subject to ordinary income tax. A company's founding team will "buy" the RSUs as part of the initial capitalization of the company. Young companies may have RSU sales to employees rather than a grant (one could argue that this is a small financial optimization).
If you left after 2 years, you would only receive half this amount even though you were "given" these shares when you joined. On the books, you are listed as holding all those shares. For example, since you are a RSU holder, you have the right to make an 83b election, though at such a mature company most of the tax benefits would be suspect.
As a RSU holder, you have full rights of being a shareholder, even for the shares that have not vested yet (this is why startup founders will have voting power from Day 1 even though 0% of their stock has vested yet). That being said you hold GOOG shares and not GOOGL shares (the latter has voting rights) so for all intent and purposes what you describe is accurate for what you see on the surface, despite the underlayers being more subtle.
You might like the section of the article beginning "Some companies are now pushing employees to waive their right to inspect the books as a condition for receiving stock awards, says Richard Grimm, an executive compensation attorney."
Is this going to be the fate of every worker protection law? Why even bother making it a law, if the company lawyers will simply sneak a waver into the mile-long employment contract, buried between the NDA and the promise that you will help train your H1B visa replacement?
Good protection laws likely have stipulations that they cannot be overridden by other agreements. Some laws don't even hold if such conditions aren't included, such as unreasonable anti-compete clauses. Best to always talk to a lawyer :)
Some countries in continental Europe have amazingly pro-employee legislative environment. I know several people who don't read the fine print of of the work contracts, because they know that any clause that gives disproportionate advantage to the employee without due compensation will be considered predatory, and thrown out in an instant if it goes to the court room.
Is this going to be the fate of every worker protection law?
Isn't this what the "gig" economy is leading us to? Uber is very similar: you aren't an employee, so no Social Security, no workman's comp, none of the hard-fought labor gains of the 20th century.
Much of the stuff you sign when you take a job is unenforceable. But they have you sign it anyway, because you remember signing and think "what's the point in talking to a lawyer?"
Thanks for calling that out. I missed that. Its odd, because our company opens the company books to us whenever we'd like (its public on a dashboard). Its the list of shareholders it appears they're keeping private.
this is actually not always ideal. If you have visibility to the company books SEC rules about insider trading apply to you even if you have no advantage by looking at the books. For public companies any employee who can see any financial or revenue information is not allowed to trade stocks outside of 14 day window after the announcement of quarterly report. Not sure what the rules are about this for private companies
For a private company, for the people we're talking about, the answer is generally that they practically can't trade at all, so you're not losing anything by looking at the books.
That has odd intersection with the Delaware law in the OP.
You can get access to the books as a shareholder specifically 'For the purpose of valuing my shares", but then if you decide to buy or sell shares based on what you learned (and what other use is there to valuing your shares?), you're insider trading?
> For public companies any employee who can see any financial or revenue information is not allowed to trade stocks outside of 14 day window after the announcement of quarterly report.
I assume you're referring to stocks of the company in question (or possibly its competitors as well). For a private company, you can't trade stocks outside company-approved periods anyway, so would this really be an additional restriction in practice?
See what the SEC has to say about insider trading.[1] You can usually sell to another insider, which in this circumstance would seem to be anyone who has at least one share and thus an equal right to examine the books.
It's selling restricted stock that's the big problem. You can do it, but it's complicated, and there are waiting periods.
> Always have an attorney review your options grant contract.
Just curious, what if you had an attorney and they pointed that clause out. Would it have made you reconsider the offer? I guess you can attempt to strike it out from contract and see what happens, or more ask for more options instead?
Honestly, if they're willing to put this clause in there in the first place, it's unlikely that they'd be willing to negotiate it for anyone but high-level hires. And that's iffy. They apparently have a very strong desire to keep their financial data private, so the most likely outcome would be rescinding your offer if you state that it's a deal breaker.
That said, I think it's a foolish clause for companies to try and force through even though I can see their arguments for it. It puts the employee at a distinct disadvantage, and invites future problems when the employee wants to do something with their shares and has no choice but to sue for records access. Requiring an NDA would be sufficient. Beyond damages, the stigma of being the guy who broke their NDA and leaked financial data would pretty much guarantee no startup would ever touch you with a ten-foot pole. As incentives go, it's a strong one.
>Beyond damages, the stigma of being the guy who broke their NDA and leaked financial data would pretty much guarantee no startup would ever touch you with a ten-foot pole.
Is checking what lawsuits you participated in part of a normal employment background check? It seems to me that most employers might avoid looking at that sort of thing for the same reason they avoid looking at your family status.
Not really, unless there's a reason for a more thorough background check/investigation. My thinking was that such a situation would be the sort of thing people would talk about. Investors would be upset if a leak harmed their interests, founders would be pissed about a betrayal, other companies would talk about it as a "this is why we need that clause" anecdote, reporters might stumble on court filings, etc.Word gets around, and in a lot of ways, the startup/tech communities are still small despite their size.
That said, it's just a hypothetical and there would be a lot of factors at play in real life. But if it were at a startup with any sort of profile, or it had well-known investors, I wouldn't bet on the news staying a secret.
In all of my past experience, terms like these in employment agreements are "take it or leave it" and not subject to negotiation. I once tried the "let's strike it out and see if they notice" thing, and the next day got a very clear and terse "Sign it unmodified or GTFO" from Legal. I've never heard of anyone successfully negotiating anything besides normal things like salary and vacation, but it may happen from time to time.
I've done it on almost every one of my employment contracts (didn't do it on the last one because it was entirely reasonable). I'm fairly choosy about what I strike out, though. For example one contract I had stipulated that I should compensate the company for any losses they incur if they terminate my employment. This is clearly unreasonable and I struck it out. They complained and I offered to GTFO if they really thought that the clause was that important to them. It turns out it wasn't.
I admit that in the past I have always had the luxury of feeling like I could turn down a job if the terms weren't right. I've never had to, though. Having said that, I have witnessed people failing to join companies I've been at because they couldn't come to terms on the contract. It happens.
I work on contract now, rather than as an employee, so I have a lot more flexibility with the contract. I suspect it will have to be that way forever because I'm at the point in my life where I refuse to sign an inventions agreement.
One side point that I think is important to point out is if your employer tries to get you to sign something new after you are already on contract, they usually have absolutely no leverage. They can't threaten to fire you over it because that would be considered duress and contracts can't be signed under duress (where I lived, anyway).
Whenever I get handed new agreements to sign when I'm already under contract, I always ask for compensation. No compensation, no contract. Usually the documents disappear in a wink. One time they didn't and all I had to do was phone up the legal department and say, "HR has given me this thing to sign, but I don't want to. They seem to be implying that I won't have a job any more unless I sign it. Is that really the case? I have my employment contract here and this isn't in one of the termination clauses..." In less than 5 minutes I had an apology from HR (Ha ha! I should have framed it. I'll never get another one!)
Obviously I'm not a lawyer. This is not advice (legal or otherwise). Consult a lawyer if you find yourself in similar situations.
> I have my employment contract here and this isn't in one of the termination clauses..."
In most of the US that won't work. "At-will" employment takes care of that. So they legal would say "sure" don't sign it. But if they really mean you won't have job there, well, in a few months you'll find you won't. But not because you didn't sign the contract, it will be for "restructuring" reasons.
[IANAL]
Kind of. At-will means you can fire for nearly any reason, but you can't fire for the _wrong_ reasons.
Retaliation for refusing to sign a contract under duress ties back to "continued employment isn't considered compensation for signing an additional employment contract." Even if there's a restructuring a few months later, the burden of proof would be on the employer to prove that there was no retaliation.
> the burden of proof would be on the employer to prove that there was no retaliation.
Only if they are sued. And then they can just say. It would take someone who is in on the nudge-nudge wink-wink euphemisms to somehow break the silence and testify. They'd have to have a falling out with the owners / management at the same when the person who is gone sued and then testify that "what we mean by restructuring is person is the wrong race". Then bingo, easy peasy case.
See companies have written rules and communication, and unwritten rules and communication. The unwritten rules are the nudge-nudge wink-wink type things.
If they are very careful they could even start a performance review probation period. Could say we need to "re-evaluate your role, you have to improve your performance review numbers". They set some unrealistic goals, then the clock start ticking. And in the end they have a paper trail of a reason to lay the person off. Even though, according to unwritten communication it was really because they were the wrong race, or gender and so on.
Well, the clause plus the likely refusal to remove it implies that your options shouldn't be considered as particularly valuable.
It means that I/you should consider the offer excluding the options (is the compensation adequate if you value the options at near zero?) and/or negotiate for a package that has less options and more direct salary.
On the margin, definitely. Basically as always, it depends on what other options you have available.
(But if the job is only worth taking because of the equity position, then don't take it: without this information, you have literally no way to tell your stock from worthless junk.)
I am not an attorney, but have been around tons. One thing you learn in Law 101 is that a contract that is antithetical to a law, or in other words enforces something illegal, is null and void, or perhaps that clause or section of the contract is null and void.
Good thing to learn more about or ask an attorney about.
Yes, This was demonstrated in the Silicon Valley HBO show. Hooli had the employees sign a contract which could not be enforceable legally. The episode where Gavin Belson is in a arbitration hearing room surrounded by a bunch of Hooli lawyers and gets his ass handed over to him by the arbitration judge. David beats Goliath in the court of law.
I don't remember actual details but I am pretty sure someone here can shed more light on this.
Wow, that bites. Clearly the invocation of law works if these clauses are showing up. I wonder if we'll reach a point where the "tech shortage" gets bad enough that engineers can negotiate clauses like this out of agreements they are asked to sign.
IANAL but my understanding is options and just that, an option to buy stock later. You don't actually own any stock until you exercise size your "option" to buy the stock
Adam at bierlegal.com is my lawyer and I can't speak highly enough of him. He's really really good and will explain things to you in a way he knows you've understood.
Call your local bar association; they can refer you to an appropriate lawyer. Have him review your current contract, and keep his contact info for reviewing any future contracts. Cost me about $200 last time I did this.
Large companies are less likely to let you change parts of the contract, but if a startup wants you they may.
Is this waiver clause enforceable?
EDIT: Let this be a lesson folks! Always have an attorney review your options grant contract.