What Zynga is doing is pretty repulsive, as I previously commented in a related thread (https://hackertimes.com/item?id=3219437), but it is not accurate to say that "[t]hey have to fire you for cause for you to lose your options."
The overwhelming majority of employees at startups sign documentation acknowledging that their employment is at will and can be terminated at any time by either party for any reason, with or without cause. In relatively rare cases involving founders or high-placed executives, the company will sign contracts stating that, though the employment is at-will (i.e., can be terminated at any time for any reason without liability), the employee will get accelerated vesting of one sort or another in the event of a termination "without cause" or a resignation for "good reason." "Cause" is usually defined as willful failure or refusal to perform duties that continues after notice and an opportunity to cure, misappropriation or misuse of company trade secrets, commission of a felony or other action involving moral turpitude, etc. and "good reason" is typically defined as material reduction in compensation or duties, relocation to a remote area, etc. If you have an employment agreement that provides for such acceleration, then you are clearly protected against the Zynga-style threats described in this piece. If you do not, then you generally are not on firm legal footing but still may have some fighting chances.
What are those? If you can argue that an otherwise permissible at-will firing becomes impermissible because it is animated by discriminatory animus (race, sex, age, etc.), and you belong to a protected class, you could argue that the threatened firing is illegal and would subject the company to damages (which, of course, would include the value of the unvested stock that would otherwise have vested had the company not acted illegally to terminate your employment).
If you can argue that the ground of termination violates public policy, this might be a separate basis for claiming that the firing is illegal, notwithstanding that the employment relationship is at-will.
If you can argue that the company has given you implied promises that your employment would be for a certain duration, this also might take it out of the at-will category and give you fighting chances.
If you can argue that you were induced by fraudulent misrepresentations, e.g., to leave an existing employment based on the promise of equity compensation, or if the at-will language in your agreement is defectively implemented, or if any other ground might exist by which you can legally claim you got cheated or had some promise made to you breached, all this too can take this out of the pure at-will category as well and give you a basis for leverage.
To sum up, "cause" is not usually needed by an employer to terminate employment and recapture unvested equity. But you also by no means automatically lose just because your employment is at will. This is a complex area. With a lot at stake, it pays to get good legal advice to see if you can find a good angle by which to protect yourself.
A good legal case depends on legal rules that support it and, even more important, on good facts that motivate judges, juries, and anyone else looking at the case to want to go in a certain direction. Here, Zynga is providing all the good facts an employee needs to motivate people to want to slap them upside the head. That by itself is not enough. But if you find even one legal hook that gives you a sound basis upon which to attack what they are doing, then you can stand and fight. It is not easy, but sometimes you have no choice.
Specifically of interest is the "Covenant-of-good-faith exception"(only in 11 states, CA being one of them) which I first saw referred to also by someone else here on HN.
At trial, the jury found that Kmart terminated
Ponsock to avoid having to pay him retirement benefits. As
part of his case, he claimed that Kmart’s discharge was in
“bad faith” and that, even without a contract, such a termination gave rise to tort liability. The court agreed, citing the employer-employee relationship as one of the “rare and exceptional cases that the duty [of law] is of such a nature as to give rise to tort liability.”
If I was a Zynga employee I'd definitely be talking to a Labor/Employment lawyer. "Give us back your unvested stock or be fired" sounds pretty "bad faith" to me. Zynga should have just fired the people, but I think they don't want to lose the talent, they'd rather negotiate lower compensation instead of having to find new talent which will most certainly know of Zynga's upcoming IPO & demand proper compensation.
Cause is usually defined as willful failure or refusal to perform duties that continues after notice and an opportunity to cure, misappropriation or misuse of company trade secrets, commission of a felony or other action involving moral turpitude, etc. and "good reason" is typically defined as material reduction in compensation or duties, relocation to a remote area, etc.
When a company decides to terminate an early engineer because the 5% they agreed at the start is deemed too high for an engineer, usually the reason given is 'non-performance'. Even though the engineer is performing his engineering duties.
Does a company need to prove that the engineer failed to perform and document it? or is it usually the company's word against the engineer's? What stands up in the court of law as 'failure to perform duties'?
It is very hard for a company to prove willful failure to perform duties when an engineer is actually executing on assigned projects, or at least attempting in good faith to execute. Engineers who have contractual protection against termination without cause are usually well-protected against arbitrary terminations on "non-performance" grounds and the company has to do a lot more than loosely assert (in "he said / she said" fashion) that someone's performance comes up short. Moreover, in most cases, the contract clause will specify that, in order to effect a termination on this ground, the company must give notice to the employee specifying why the performance is inadequate and give the employee a window within which to cure any defects in performance. This makes it doubly difficult to terminate someone on non-performance grounds because the charges have to be detailed and there will always be an argument about whether any deficiencies were cured if the employee is actually trying to perform all assigned duties. The company can try to document such cases all it wants but will normally hold a losing hand in trying to prove "cause" on that ground in such cases.
The Zynga cases are different, however, because the employees being squeezed in those cases are almost certainly pure at-will employees who have no contractual protection against being terminated without cause. Without the contractual protection, such employees can be terminated for pretty much any reason in the normal case and, if "non-performance" is cited as the reason, the company does not need to prove anything to back this up. "Non-performance" in such cases is often nothing more than a label used to rationalize a decision made on who knows what ground (e.g., on the ground that the company just wants to get someone's potentially valuable stock back before it vests).
If you had clear reasoning that you was dismissed for a reason other than failure to perform duties, then you would have cause to sue.
FTA two people already retained council, settled and still got to keep a portion of their stock.
What Zynga is worried about is that if they're going to be publicly valued at $1 billion, the guy who owns 5% of stock because he was there from day one is going to land $50 million and walk.
I imagine that the biggest problem with IPO's for companies like Zynga (especially if they're acting douche to their employees) is that they risk losing a lot of employees. Either selling up stock to get the cash, or simply retiring to live off dividends and slow-stock sale tactics.
The overwhelming majority of employees at startups sign documentation acknowledging that their employment is at will and can be terminated at any time by either party for any reason, with or without cause. In relatively rare cases involving founders or high-placed executives, the company will sign contracts stating that, though the employment is at-will (i.e., can be terminated at any time for any reason without liability), the employee will get accelerated vesting of one sort or another in the event of a termination "without cause" or a resignation for "good reason." "Cause" is usually defined as willful failure or refusal to perform duties that continues after notice and an opportunity to cure, misappropriation or misuse of company trade secrets, commission of a felony or other action involving moral turpitude, etc. and "good reason" is typically defined as material reduction in compensation or duties, relocation to a remote area, etc. If you have an employment agreement that provides for such acceleration, then you are clearly protected against the Zynga-style threats described in this piece. If you do not, then you generally are not on firm legal footing but still may have some fighting chances.
What are those? If you can argue that an otherwise permissible at-will firing becomes impermissible because it is animated by discriminatory animus (race, sex, age, etc.), and you belong to a protected class, you could argue that the threatened firing is illegal and would subject the company to damages (which, of course, would include the value of the unvested stock that would otherwise have vested had the company not acted illegally to terminate your employment).
If you can argue that the ground of termination violates public policy, this might be a separate basis for claiming that the firing is illegal, notwithstanding that the employment relationship is at-will.
If you can argue that the company has given you implied promises that your employment would be for a certain duration, this also might take it out of the at-will category and give you fighting chances.
If you can argue that you were induced by fraudulent misrepresentations, e.g., to leave an existing employment based on the promise of equity compensation, or if the at-will language in your agreement is defectively implemented, or if any other ground might exist by which you can legally claim you got cheated or had some promise made to you breached, all this too can take this out of the pure at-will category as well and give you a basis for leverage.
To sum up, "cause" is not usually needed by an employer to terminate employment and recapture unvested equity. But you also by no means automatically lose just because your employment is at will. This is a complex area. With a lot at stake, it pays to get good legal advice to see if you can find a good angle by which to protect yourself.
A good legal case depends on legal rules that support it and, even more important, on good facts that motivate judges, juries, and anyone else looking at the case to want to go in a certain direction. Here, Zynga is providing all the good facts an employee needs to motivate people to want to slap them upside the head. That by itself is not enough. But if you find even one legal hook that gives you a sound basis upon which to attack what they are doing, then you can stand and fight. It is not easy, but sometimes you have no choice.