Employees can be forced to forfeit their stock

A company can force departing employees to forfeit their stock in the company in certain circumstances, according to the Connecticut Supreme Court. The company allowed employees to elect to receive restricted stock in lieu of bonuses or through voluntary payroll deductions. However, employees who quit or were fired for cause were required to forfeit the stock as well as the right to the amounts paid for the stock.

The employees in this case argued that the forfeiture requirement violated state wage laws, because the company could in effect withhold accrued wages from workers. But the court decided that the bonuses didn’t constitute “wages” under to the state wage law. That’s because they were awarded on a discretionary basis and weren’t directly linked to the efforts of the particular employee.

As for the payroll deductions, as long as they were truly voluntary and the employees knew what they were doing, the forfeiture rule was legal. And the deductions in this case met these requirements because the forfeiture provision was clearly explained in writing and signed by the employees.