SAN FRANCISCO — When software engineer Peter Moody went to work at Uber in 2015, then one of the hottest companies to work for, he took a deal common at tech startups: a lower salary but with the promise of stock.
It didn’t turn out quite as he expected.
Not only has Uber’s stock dropped in the past year — a normal possibility, especially during a recession — but in the past few months, Moody and others who have worked at Uber said they’ve been hit by huge tax bills that in some cases may have wiped out the promised reward that led them to go to work at the ride-hailing company in the first place.
The tax bills have been a surprise that some are just finding out about ahead of Wednesday’s tax filing deadline.
And Uber is to blame for the tax bills, former employees said, thanks to a little-noticed and last-minute decision that the company made in May 2019, days before its stock market debut. They said Uber in effect shifted potential tax liability from the company to them and other current and former employees, from recent hires all the way up to executives.
Five former Uber employees including Moody said in interviews that they’re angry enough at Uber that they’re considering suing their former employer. Ray Gallo, a lawyer in San Francisco, said there’s about $200 million at stake and that he has 60 people signed up for a class-action lawsuit he’s planning to file, although the matter may end up in arbitration.
The situation raises questions about the sustainability of the Silicon Valley model of paying employees. If other startups do what Uber did to its employees in shifting tax liability, the former employees said, fewer people are going to risk taking jobs where they’ll be paid mostly in promises of stock.
For Moody, this year’s tax bill means that years of work he put in at the San Francisco startup won’t pay off as he expected. He said he was planning to put his stock compensation into his two kids’ college funds.
“Walking away with no money or very, very little money after selling all of the RSUs was a very real possibility,” he said, referring to restricted stock units, a form of stock compensation.
Uber spokeswoman Lois van der Laan said the company had no comment on the dispute.
Uber, an early gig-economy company that expanded aggressively, is used to fielding angry complaints from drivers, passengers, restaurants and city regulators, but complaints from former employees about compensation have been less common. Now, some said, they’re furious.
“There were folks who gave up opportunities to join Uber and worked four years assuming there would be equity as part of their compensation package,” said a former employee who spoke on the condition of anonymity because he feared repercussions from speaking publicly.
“I don’t believe they expected it to play out this way, and had they known that they might have made a different decision,” he said.
At issue is the exact date when Uber delivered the promised shares to its employees. Employees or early investors who hold stock in companies that are going public are typically required to wait to sell their shares until a certain amount of time has passed, a rule known as a lockup period.
Companies also decide when to grant stock to employees. The timing a person receives stock can have significant tax consequences.
In Uber’s case, the company delivered shares to its employees on the day of its IPO in May 2019, meaning employees would be taxed at the price of $45 a share. But the employees were restricted from selling their shares for six months, by which point the price had fallen to around $27 a share.
Gallo, the lawyer representing the employee-shareholders, said Uber should have delivered the shares when the lockup ended in November and that moving up the “settlement” date violated their contracts. Uber benefited by eliminating uncertainty around its compensation expenses, offloading tax risk onto employees, he said.
“The tech industry is based in part on this idea that you’re going to get low wages and we’re going to work you like a dog but you’ll get this huge payout when the IPO happens,” Gallo said. Most of the current or former Uber employees he’s spoken with were shorted out of $20,000 to $50,000, he said.
He and the former Uber employees said they weren’t aware of a similar situation happening with other tech-startup IPOs.
In the past several weeks, the subject has become the talk of former Uber employees, with many pouring out their frustrations to one another in text messages and emails.
“Multiple people are just having conversations with their accountants and are just getting their tax bill,” said one of the former employees, who said she feared reprisals if quoted by name. “It’s like a cartoon when your eyes pop out of your head.”
Legal experts said the outcome would come down to the language of the contract between Uber and its employees.
“The question will likely be whether or not Uber was grossly negligent in structuring the option plan as it did,” or whether it otherwise violated federal securities law, said Donald Polden, a Santa Clara University law professor who studies employment law. He said the former employees face a difficult task.
But James Cox, a Duke University professor who specializes in securities law, said there’s also a principle that parties deal fairly and in good faith. One side to a contract shouldn’t “destroy the contemplated benefit of the other party,” he said.