Uber Reneges on Employee Recruitment Promises, Class Action Says

An Uber software engineer is accusing the company of cheating employees out of stock options on the terms promised in their employment agreements.

Plaintiff Lenza McElrath says Uber has been pulling a sort of bait-and-switch on some of its most highly sought-after employees.

He claims Uber offered to compensate its software engineer employees with stock options exerciseable on certain favorable terms, then reneged on that agreement to improve the company’s own tax burden.

McElrath says Uber compensates some of its more highly-paid employees with stock options, which can be so valuable as to dwarf those employees’ salaries.

He says these options are supposed to become exerciseable over a period of several years, supposedly at a rate that allows them to be treated as Investment Stock Options, or ISOs, to the employees’ benefit.

Accelerating the exerciseability of these stock options prevents employees from treating them as ISOs, McElrath says. The result is that these employees lose significant benefits that they would have gotten under the original terms of their employment agreements, McElrath claims.

At the same time, the acceleration allows Uber to take advantage of millions of dollars in tax deductions, the plaintiff claims.

McElrath says that in September 2014 he entered into an employment agreement with Uber. Under the terms of that agreement, McElrath was to receive 20,000 investment stock options. These options were scheduled to become exerciseable at a rate of 25 percent per year over the course of four years, he alleges.

In reliance on Uber’s promises, McElrath says he relocated from Washington State to the Bay Area so he could work for Uber.

A couple months after McElrath started work, he claims Uber gave him a Notice of Stock Option Grant that purported to make all of his stock options exerciseable after only six months.

The plaintiff accuses Uber of using false promises of stock options to recruit more highly sought-after software engineers than it would be able to otherwise. McElrath himself is a graduate of Carnegie Mellon University and Stanford Law School, with previous software engineering experience at Yelp.

McElrath is proposing to represent three different plaintiff Classes:

• The Uber Incentive Stock Option Class would include all current and former Uber employees who, in the four years prior to the filing of this action, were promised investment stock options in their employment agreement but for whom some of those options were deemed non-qualifying after Uber imposed a shorter exerciseability schedule.
• The Uber Trading Window Class would represent all current and former Uber employees who within the past four years were prevented from exercising their stock options according to the schedule in their employment agreement because of trading windows imposed by Uber.
• The Relocation Subclass would include all of the above Class Members who relocated their residence so that they could work for Uber.

He seeks an award of damages, restitution (including restitution of all of Uber’s tax savings that resulted from the allegedly unlawful practice complained of), plus court costs and attorneys’ fees.

McElrath is represented by attorneys R. Scott Erlewine, Nicholas A. Carlin and Brian S. Conlon of Phillips Erlewine Given & Carlin LLP

The Uber Employee Stock Options Class Action Lawsuit is Lenza H. McElrath III v. Uber Technologies Inc., Case No. 3:16-cv-07241, in the U.S. District Court for the Northern District of California.