Employers will frequently offer employees stock options or stock option plans (ESOPs) as an incentive to work for the employer. Normally, the way stock options work is that after an employee works at the company for a certain amount of time, the employer will sell shares of the company’s stock to that employee for less than the market value of the stock. The employee can then sell the shares of stock on the market for more than the employee purchased them or retain the shares and their dividends, thereby making money off of the shares.
Sometimes, stock options can be a curse instead of an incentive. In many instances, employees have purchased stock options only to find that the actual value the company’s stock has fallen below the price they purchased them for, and may even become worthless if the company goes under.
An employee that has lost significant amounts of money because their stock options became worthless may have a legal recourse against the employer, especially if the employer knowingly gave the employee false hopes of becoming rich. Ask yourself these questions when determining if your employer may have put you into an unjust situation:
- Did your employer educate you about their employee stock option (ESO) programs- Your employer has a responsibility to make sure you understand what you are getting into by purchasing stock option benefits, including the risks.
- Did your employer provide honest information about the company stock- Your company is responsible for making sure its employees understand where the company currently is financially and its future prospects. It is important that this information be honest and unbiased. Your employer cannot make promises about the company doubling or tripling in value over the next several years. Even knowingly giving employees a false sense of optimism about the future value of the company can be considered fraudulent.
- Did your employer educate you as to the tax implications of stock options- Employers also are responsible for making sure employees understand how their shares in the company will be taxed.
- Did your employer show you how to protect the value of ESOs and company stock- Some employers restrict employees from purchasing protective puts (i.e., insurance for stocks) for their stock options. This practice is unlawful; your employer must allow its employees to buy protective puts to protect their investments.
If you think that you lost money because your company misled you about its stock options plan, you may wish to consult an experienced employment law attorney or employee stock option attorney. Wrongful cancellation of employee stock options, breach of an employee stock option agreement, or wrongful termination of employee stock options are often sufficient grounds for legal action. An employment law lawyer or employee stock option lawyer can advise you of your rights and help you determine if you are entitled to compensation for your lost investment through employee stock option litigation.