Restricted Stock Units (RSUs) are a form of equity compensation offered by employers to employees. They represent a promise to issue shares of the company's stock to the employee at a future date, subject to certain conditions. RSUs are a popular form of compensation in California, particularly in the tech industry, due to their potential to align the interests of employees with those of the company.

Benefits of RSUs for California Employees

1. Equity Ownership: RSUs provide employees with an opportunity to own a stake in the company, which can be financially rewarding if the company's stock value increases.

2. Incentive Alignment: By tying compensation to the company's performance, RSUs encourage employees to contribute to the company's success.

3. Deferred Taxation: Unlike stock options, RSUs are not taxed at the time of grant. Employees are taxed when the shares vest, which can be advantageous if the stock value appreciates over time.

RSUs and Employment Termination

The treatment of RSUs upon termination of employment can vary based on the circumstances of the termination and the terms of the RSU agreement.

Laid Off or Terminated Without Cause

• Vesting Acceleration: Some companies may offer accelerated vesting of RSUs in the event of a layoff or termination without cause. This means that a portion or all of the unvested RSUs may vest immediately.

• Severance Packages: Employees should review their severance packages to understand how their RSUs will be treated. It is crucial to negotiate favorable terms regarding RSUs during severance discussions.

Terminated for Cause

• Forfeiture of RSUs: Typically, if an employee is terminated for cause, any unvested RSUs are forfeited. Employees should be aware of what constitutes "cause" under their employment agreement to avoid unexpected forfeiture.

Compliance with California Law

Employers in California must navigate several legal considerations when offering RSUs:

1. Securities Regulations: Employers must ensure compliance with federal and state securities laws when issuing RSUs.

2. Employment Law: California's labor laws, including those related to wage and hour regulations, must be considered when structuring RSU agreements.

3. Fair Treatment: Employers should implement clear policies regarding the vesting and forfeiture of RSUs to ensure fair treatment of employees and avoid potential disputes.

Key Considerations for Employees

Employees should be proactive in understanding their RSU agreements and the implications of various employment scenarios. Here are some key questions to ask:

• What is the vesting schedule for my RSUs, and are there any conditions that could accelerate or delay vesting?
• How are my RSUs treated if I am laid off or terminated without cause?
• What constitutes "cause" for termination, and how does it affect my RSUs?
• Are there any tax implications I should be aware of when my RSUs vest?
• How does the company's performance impact the value of my RSUs?

By asking these questions and seeking clarification from their employer or legal advisor, employees can ensure they are fully informed about their RSU compensation and their rights under California law.

In conclusion, RSUs can be a valuable component of an employee's compensation package, offering both financial benefits and a sense of ownership in the company. However, understanding the terms of RSU agreements and the implications of employment termination is crucial for both employers and employees to ensure compliance with California law and fair treatment.

Disclaimer: This post is for informational purposes only and does not constitute legal advice or create an attorney-client relationship.