The lawsuits usually arise after an employee has been discharged. Many of these employees allege that they were fired because the employer did not want their options to vest. The contract should also address stock options on an employee's death or disability retirement. This helps prevent employee charges that the company was trying to avoid vesting. For example, if an employee will earn 5,000 options over a four-year period, the employer might award the first 25 percent after one year and then offer monthly vesting for the next three years.
Confusion surrounding the terms of the stock option agreement is a common source of litigation.
You should ensure that employees are not inundated with paperwork, that the various documents do not contradict one another, and that the employees understand the agreement. A lawsuit may arise if a brief, written summary of the plan appears to offer a more generous deal than the plan actually provides. Employees who have been lured away from good jobs with promises of stock options have begun to sue their employers when the expected wealth fails to materialize. While fraud may be difficult to prove because the worker would have to show that the employer knowingly made false statements, he or she may be able to establish fraudulent misrepresentation. Or, if the employee can show that the employer made promises it should have known were false and he or she suffered damages as a result, the company may find itself defending a negligent misrepresentation lawsuit.