California Supreme Court Affirms Employer’s Right to Offer Voluntary Equity Plan

In a decision strengthening the right of employers and employees to negotiate the terms of employees’ compensation, the California Supreme Court in Schachter v. Citigroup, Inc., No. S161385 (November 2, 2009), affirmed summary judgment against an employee who claimed that his incentive compensation plan violated the California Labor Code.

Citigroup offered a voluntary employee incentive compensation plan under which employees could elect to receive a percentage of their compensation in the form of shares of restricted company stock at a reduced price. During a two-year restriction period, the employee was granted the right to vote the shares of restricted stock and received dividends on the shares, though the restricted shares were not included in the employee’s gross income for tax purposes. At the end of the two-year restriction period, title to the shares vested fully with the employee. If the employee’s employment ended before the end of the two-year period, however, he or she forfeited the restricted stock.

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