Today, the California Supreme Court affirmed a California Court of Appeal opinion pertaining to a former employee’s forfeiture of unvested stock. In affirming the lower court’s decision, the Court in Schachter v. Citigroup, Inc. held that an agreement requiring employees to forfeit unvested restricted stock upon resignation did not violate Labor Code sections 201, 202, and 219.

In comparing the receipt of unvested stock to bonus payments and other incentive-based compensation, the Court in Schachter reasoned that only where the employee satisfies the condition(s) precedent to receiving incentive compensation can that employee be said to have earned the compensation. In this case, in order to receive his unvested stock, the appellant agreed to remain employed for the duration of the stock’s vesting period as a condition of receipt. However, when the appellant voluntarily terminated his employment before the stock fully vested, he failed to satisfy all conditions precedent. As a result, the appellant was not entitled to his unvested stock because he had not yet earned the wages in dispute.

The Court further rejected the appellant’s assertion that his incentive compensation should vest on a pro rata basis because the unvested stock arguably represents payment for services rendered. The Court noted that employers give incentive compensation to induce employees to remain on the job for a certain period of time. On that basis, such compensation is for future rather than past services. As a result, the Court in Schachter held that the unvested stock does not vest on a pro rata basis.

Click here for a copy of the Schachter decision.