California Court Ruled Stock Options are Not Classified as Wages

In April 2024, the California Court of Appeal, First District issued an instructive decision in the case of Shah v. Skillz Inc. Notably, the appeals court determined that stock options are not classified as wages. This is an important decision as the State of California has some of the most comprehensive, stringent wage and hour laws in the entire country. Within this blog post, our Coachella Valley and Riverside County employment lawyer provides a more detailed overview of the court decision.

 Case Review: Shah v. Skillz Inc.

 The Facts 

In 2015, Skillz Inc. hired an employee named Gautam Shah. The company was, at the time, a Silicon Valley start-up. Not uncommon for the specific industry (tech start-ups), Mr. Shah took relatively modest direct compensation in exchange for stock options. A stock option is a financial derivative that gives the holder the right, but not the duty, to buy or sell a stock at a pre-specified price.

Stock options are often used as part of employee compensation packages. Depending on the company’s success, stock options can be extraordinarily valuable or virtually worthless. In this case, the company thrived. It went through an initial public offering (IPO) in 2020, making the stock options issued in 2015 extremely lucrative. However, the company terminated Mr. Shah for cause in 2018. During that termination, he lost all of his stock options.

 The Legal Issue 

Mr. Shah filed an employment law claim against his former employer that, among other things, alleged that the employer denied him the wages that he had rightfully earned. A key issue in the case:

• Are stock options “wages” for the purposes of employment law in California?

Companies have not traditionally treated stock options as wages. However, if they are classified as wages, employers may be required to pay out future stock options to an employee even if that worker was terminated for cause before the employee could exercise that option.

 The Decision 

Upon review, a California appellate court ruled in favor of the employer. Specifically, the court found that Skillz Inc. was within its rights to strip Mr. Shah of his stock options when it terminated him for cause in 2018. Notably, underpinning this decision was the court’s finding that California’s stock options are not wages. The court noted that stock options are conditional, future benefits that employers may offer to employees as a bonus. Stock options are a form of worker compensation governed by contract law and not wage and hour law in California.

 Consult With Our California Employment Lawyer Today

At Sloat Law Group, our California employment law attorney is committed to helping employers find solutions. If you have any specific questions about the legal regulations around stock options as compensation, we are here to help. Contact us today for a confidential, no-obligation consultation. We represent employers in Coachella Valley, Riverside County, and throughout California.

 Source:

 caselaw.findlaw.com/court/ca-court-of-appeal/116023427.html