Slicing Pie

            Fired for No Good Reason

            On the flip side, if the employee is fired through no fault of her own (also called “without cause”), she gets to keep all her slices. The company can offer to buy the slices back in an amount of cash equal to the outstanding slices, but the employee should not be obligated to sell.

            In this case, the company has to deal with the inconvenience of having “dead” equity or buy it back at a very high premium. Keeping the multipliers has created a consequence for the company, forcing the management team to think twice before letting someone go for no reason. This protects the employee from the decisions made by the management team that negatively impact their future.

            I’ve heard, and experienced, equity horror stories where managers fire employees for the sole purpose of getting back equity. In many cases such transactions are perfectly legal, but being legal isn’t the same thing as being fair. If a management team terminates an employee through no fault of their own they should be prepared to face consequences that include compensating the employee for the risk they accepted by participating in the startup.

            There are a number of reasons a person would be fired for no good reason, including a change in strategy, reduction in force, elimination of redundant positions, or “just because”. Most jobs (at least in the U.S.) are considered “at will”, meaning the company can fire anyone, for any reason, at any time.

            The company can’t prevent the individual from going to work for a competitor, either. It’s not fair to fire someone for no reason and then limit their job prospects. This doesn’t mean the person can steal ideas and customers. But it does mean they can go join the competition. However, the company would be within their right to ask for a non-solicitation agreement which prevents the employee from hiring the company’s employees with a specified period of time (usually one year).

            Updated: 04 Apr 2016 11:22 AM
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