If you were laid off with RSUs in California, the first thing you probably heard was some version of this: “Unvested equity is forfeited. There’s nothing we can do.” For many employees, that statement comes right before a severance agreement lands in their inbox and a ticking deadline starts. The equity you spent years working toward suddenly looks like it vanished overnight.
But here is the part most employers do not explain. Losing RSUs at termination does not always mean losing leverage. In California, equity compensation often becomes most relevant not as a standalone claim, but as a pressure point in severance negotiations. The legal question is rarely just whether RSUs vested. The real question is whether the circumstances surrounding your termination, the contract language, and the timing give you negotiating power.
I’m Matt Ruggles, and I’ve been practicing employment law in California for more than 30 years. Over that time, I have negotiated countless severance agreements for employees at every level, from frontline workers to senior executives. In some cases, those negotiations have included successfully accelerating RSU vesting or increasing severance value to account for lost equity. In others, the right answer was explaining why the RSUs were unlikely to move the needle and where leverage actually existed.
I wrote this article because RSU issues are routinely misunderstood, even by sophisticated employees. Many people assume unvested RSUs are either automatically recoverable or completely hopeless. Both assumptions are wrong. California law sits in the middle, and the outcome depends on contract language, timing, disclosure, and the reason for termination. This article walks through those realities, what works, what fails, and how RSUs fit into a smart severance strategy.
Executive Summary: Key Takeaways for California Employees With RSUs
If you were laid off with RSUs in California, the core conclusions are straightforward:
- Unvested RSUs are usually forfeited at termination, and California wage laws rarely require employers to pay them out.
- The strongest leverage does not come from wage claims, but from contract law, implied covenant violations, and wrongful termination theories.
- Missing or incomplete RSU plan documents matter. When employers fail to disclose full equity terms, ambiguity is construed against them.
- Termination timing can change the analysis. Being terminated shortly before a vesting event, especially without a credible explanation, raises legal red flags.
- Wrongful termination claims can convert lost RSUs into recoverable damages, even when the equity never vested.
- Change-of-control provisions can unlock hidden value, particularly after mergers, acquisitions, or restructurings.
- Clear forfeiture language usually defeats RSU claims, and California courts will enforce contracts employees agreed to.
- RSUs matter most before you sign a severance agreement, when employers are deciding how much risk they are willing to buy off.
Those are the takeaways. What follows is the legal reality behind them and how these issues play out in real severance negotiations.
Why Unvested RSUs Are Usually Lost After Termination in California
Let’s start with the bad news, because this is where most employees get misled.
Many California employees assume that unvested RSUs are “earned wages” and must be paid out when employment ends. That belief makes intuitive sense. You worked. You performed. You stayed. But under California law, that assumption is usually wrong.
The California Supreme Court squarely rejected this argument in Schachter v. Citigroup, Inc. (2009) 47 Cal.4th 610. In Schachter, the Court held that forfeiture of unvested restricted stock at termination does not violate California wage payment laws. The reason is straightforward. Incentive compensation like RSUs is not earned until the vesting conditions are satisfied. Continued employment is a lawful condition precedent. If vesting never occurs, the compensation never becomes wages.
The Court drew a clear line between RSUs and vacation pay. Vacation pay compensates employees for past services and vests as it is earned. RSUs, by contrast, are typically designed to reward future service and continued loyalty. No vesting means no earned compensation. California courts do not blur that distinction.
As a result, California Labor Code sections 200 through 204, which require prompt payment of earned wages at termination, generally do not help employees recover unvested RSUs. If your theory begins and ends with wage statutes, you are already on unstable ground.
Matt’s Legal Perspective
Wage claims for unvested RSUs are usually dead on arrival. If your entire strategy is “California law says you have to pay me my wages,” you are playing the wrong game. The leverage, if it exists, comes from somewhere else.
If you were laid off with RSUs in California and are being asked to sign a severance agreement, timing matters. Before you assume the equity is gone, call me at 916-758-8058. I can quickly tell you whether the facts create any real leverage or whether signing makes sense.
If you want to learn how to push for a better severance outcome, read my detailed explanation: How to Maximize Your Severance Offer in California.
How California Employees Can Recover Unvested RSUs Through Contract Claims
If California employees ever recover unvested RSUs after termination, it is almost always through contract law, not wage law. This is where the analysis shifts from dead ends to real leverage.
RSU awards are contracts. They are governed by employment agreements, equity incentive plans, grant notices, offer letters, and any documents incorporated by reference. California courts analyze these documents using standard contract principles, not employment policy arguments. That distinction matters.
Two California Civil Code provisions do most of the heavy lifting in RSU contract disputes:
- Civil Code section 1636, which requires courts to give effect to the mutual intent of the parties at the time the contract was formed.
- Civil Code section 1656, which allows courts to imply terms necessary to carry a contract into effect when the written agreement is incomplete.
When RSU documents are unclear, internally inconsistent, or do not match what the employee was promised during recruitment or retention, contract-based claims become viable. Ambiguity is not a technical flaw. Under California law, it is leverage.
Breach of Contract Claims Involving RSUs After Termination
A breach of contract claim involving RSUs does not require a court to ignore forfeiture provisions. It requires showing that the employer failed to honor the deal that was actually made.
These claims most commonly arise when:
- The employer promised equity compensation as part of recruiting or retaining the employee.
- The employee was never provided the full RSU plan documents or governing equity plan.
- The forfeiture or termination provisions are vague, buried, or internally inconsistent.
- The employer’s conduct undermines the agreed compensation structure after the fact.
A leading example is Ryan v. Crown Castle NG Networks Inc. (2016) 6 Cal.App.5th 775. Although the verdict was later reversed on procedural grounds, the case remains instructive. A jury initially found liability for breach of contract and breach of the implied covenant of good faith and fair dealing related to stock options.
In Ryan, the employee was never given the full equity plan documents that contained critical limitations on his stock options. That omission created ambiguity. Under California law, contractual ambiguity is construed against the drafter. In the employment context, that is almost always the employer.
The takeaway is not that employees automatically win RSU contract cases. The takeaway is that failure to disclose material plan terms can materially change the leverage analysis, especially when equity compensation was a significant part of the employment bargain.
Matt’s Legal Perspective
If your employer never gave you the full RSU plan, that is not a technical oversight. That is leverage. Contracts do not get enforced in secret, and California courts take that principle seriously.
To see how leverage actually translates into dollars, I walk through a real-world example of strategy and timing in my post: How We Tripled a California Enterprise Sales Executive’s Severance.
Using the Implied Covenant to Challenge RSU Forfeiture After Termination in California
Every California contract includes an implied covenant of good faith and fair dealing. In practical terms, that covenant prevents one party from doing something that unfairly frustrates the purpose of the agreement, even if the contract does not expressly forbid the conduct.
In the employment context, this covenant applies to equity compensation agreements, including RSUs. But it is not a free-floating fairness doctrine. Courts apply it carefully, and they enforce its limits just as strictly as its protections.
The California Supreme Court drew that boundary clearly in Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654. In Foley, the Court held that breach of the implied covenant in employment cases sounds in contract, not tort. That means no emotional distress damages, no punitive damages, and no moral outrage recovery. The remedy is economic loss, nothing more.
That limitation matters. Implied covenant claims in RSU cases are not about punishment. They are about restoring the benefit of the bargain when the employer’s conduct undercuts it.
When Termination Timing Supports an Implied Covenant RSU Claim
Implied covenant claims can still matter in RSU disputes, particularly where termination timing looks engineered rather than coincidental.
Courts are more receptive to these claims when there is evidence that an employer terminated an employee to avoid RSU vesting. Terminating someone days or weeks before a significant vesting event, without a credible and independently supported reason, raises obvious red flags. Timing alone is not enough, but timing combined with weak justification often is.
These cases are not about rewriting equity plans. They are about whether the employer used its termination power in a way that deliberately stripped the employee of the contract’s expected benefit.
When Clear RSU Forfeiture Language Defeats Implied Covenant Claims
There is a hard stop to this analysis, and California courts enforce it.
In Saw v. Avago Technologies Limited (2020) 51 Cal.App.5th 1102, the court rejected an implied covenant claim where the RSU agreement expressly allowed repurchase or forfeiture upon termination “for any reason whatsoever.” The language was clear. The employee agreed to it. The court enforced it.
Implied covenant claims do not allow courts to rewrite unambiguous contracts. If the equity plan clearly authorizes forfeiture upon termination and the employee received and accepted those terms, the analysis usually ends there.
Matt’s Legal Perspective
Bad faith matters, but only when the contract leaves room for it. Judges do not rescue people from deals they clearly agreed to.
If you’d like to know how employment lawyers approach severance deals, read my guide: How to Negotiate Severance Like an Employment Lawyer.
When Wrongful Termination Turns Lost RSUs Into Recoverable Damages in California
The prior sections explain why unvested RSUs are hard to recover directly and when contract-based theories can create leverage. There is another path that matters just as much in real cases, especially during severance negotiations.
Sometimes the strongest RSU strategy is not to sue for the RSUs at all.
Instead, employees recover lost RSU value by proving wrongful termination and treating the equity as part of their economic damages.
If an employee establishes wrongful termination, whether based on retaliation, discrimination, or termination in violation of public policy, California law allows recovery of lost compensation. That includes equity compensation. RSUs do not need to be “earned wages” to be recoverable as damages. They only need to be compensation the employee lost because the termination was unlawful.
California courts have recognized this principle for decades. In Pichon v. Pacific Gas & Electric Co. (1989) 212 Cal.App.3d 488, the court held that wrongful termination claims seeking purely economic damages are not barred by the workers’ compensation exclusivity rule. When the harm is economic loss flowing from an unlawful termination, the claim proceeds in civil court.
If you’re curious why wrongful termination lawsuits under the FEHA often backfire on employers, read my blog: Wrongful Termination Lawsuits Under the FEHA: A Costly Gamble for Employers.
How Courts Value RSUs as Wrongful Termination Damages
When RSUs are used as damages, courts generally apply expectation damages. The analysis focuses on what the employee reasonably expected to receive absent the unlawful termination.
In practical terms, that usually means calculating the difference between the market value of the shares and the exercise price. For RSUs, where there is no exercise price, the analysis focuses on the market value at the relevant vesting or valuation point, adjusted for timing and contingencies.
This framework sidesteps the wage-law problem entirely. The RSUs are not treated as “wages owed.” They are treated as part of the compensation the employee lost because the employer engaged in unlawful conduct.
That distinction matters. It is one of the cleanest ways to neutralize the argument that unvested RSUs are automatically forfeited at termination.
Matt’s Legal Perspective
Sometimes the RSUs are not the claim. They are the receipt. Prove the termination was illegal, and the equity often follows.
If you want to learn how to use leverage to improve your severance deal, read my article: How To Use Leverage in Severance Negotiation.
How Change-of-Control Provisions Can Trigger Accelerated RSU Vesting After Termination
Up to this point, the focus has been on terminations that occur in the ordinary course. Change-of-control scenarios are different, and they often create leverage employees do not realize exists.
Many RSU agreements include change-of-control provisions. These clauses can trigger accelerated vesting when a company is acquired, merges, or undergoes a qualifying corporate transaction. When they apply, they can dramatically alter the RSU analysis.
California courts enforce change-of-control provisions according to their terms. In In re Marriage of Walker (1989) 216 Cal.App.3d 644, the court recognized that a corporate sale triggered accelerated vesting of stock options. The case stands for a simple but important principle: when equity agreements promise accelerated vesting upon certain corporate events, courts will enforce those promises.
Disputes typically arise over two questions. First, does the transaction actually qualify as a “change of control” under the plan language? Second, did the employee’s termination occur “in connection with” that transaction? Both questions are highly fact-specific and depend almost entirely on the wording of the RSU plan and related agreements.
These disputes are especially common in executive and senior management cases, where equity compensation is a substantial part of total pay. Roden v. AmerisourceBergen Corp. (2007) 155 Cal.App.4th 1548 illustrates how change-of-control benefits and executive compensation can become contested when corporate transactions occur and employment ends shortly thereafter.
The key point is this: change-of-control provisions are not boilerplate. They are leverage provisions. And they are frequently misunderstood or under-enforced unless someone reads the documents carefully.
Matt’s Legal Perspective
If your company was acquired and you were shown the door, your RSU agreement deserves a forensic reading. This is where hidden value often lives.
If your termination followed a corporate transaction and the rules suddenly changed, I break down how executives protect themselves in these situations in my post: How Executives Negotiate Severance After a Merger or Layoff in California.
Why Clear RSU Forfeiture Provisions Usually Defeat Employee Claims in California
After walking through where employees sometimes win, it is just as important to be clear about where cases usually fail.
Employees lose RSU disputes when the governing documents are clear, complete, and properly disclosed. California courts enforce unambiguous contracts, even when the outcome feels harsh.
In Barton v. Elexsys International, Inc. (1998) 62 Cal.App.4th 1182, the court enforced strict post-termination exercise limits because the contract language was unambiguous. The employee agreed to the terms. The court applied them as written.
The same result follows when RSU plans clearly state that unvested awards are forfeited upon termination for any reason, and the employee received and accepted those terms. In those situations, courts generally do not bend the rules to reach a more sympathetic outcome.
California is employee-friendly, but it is not anti-contract. Courts do not invalidate clear equity agreements simply because the employee regrets the deal after termination.
Matt’s Legal Perspective
If the paperwork is clean and you signed it, California courts usually mean it.
By this point, you should be asking one question: does my situation create leverage, or not? If you lost RSUs after termination in California and are weighing a severance offer, call me at 916-758-8058. I will walk through the documents and timing and give you a straight answer.
Practical RSU Checklist for California Employees Facing Termination or Severance
If you were laid off or terminated with unvested RSUs in California, most of the noise you will hear is irrelevant. These cases do not turn on slogans or single clauses. They turn on a short list of facts that either create leverage or shut it down.
Here is the checklist that actually matters.
Item #1: Did You Receive the Full RSU and Equity Plan Documents?
Start here. Not summaries. Not offer-letter snippets. The full equity incentive plan, grant notices, and any documents incorporated by reference.
If your employer never provided the complete plan documents, that omission matters. Missing disclosures create ambiguity, and ambiguity is interpreted against the drafter. In equity cases, that is almost always the employer.
Item #2: Are the Termination and Forfeiture Provisions Clear or Ambiguous?
Read the forfeiture language carefully. Then read it again.
Clear, unambiguous forfeiture provisions usually get enforced. Vague, internally inconsistent, or buried provisions often do not. If the language can reasonably be read more than one way, that is not a drafting accident. It is a leverage point.
Item #3: How Close Was Your Termination to a Vesting Date?
Timing matters more than most employees realize.
Termination days or weeks before a major vesting event raises questions courts take seriously, especially when the stated reason for termination is thin, inconsistent, or undocumented. Timing alone is not enough, but bad timing plus weak justification is often the combination that changes the analysis.
Item #4: Does the Employer’s Stated Reason for Termination Hold Up?
Look for consistency.
Has the employer’s explanation stayed the same over time? Does it line up with your performance history, reviews, emails, and internal communications? Sudden performance problems that appear only after termination are a common red flag in RSU disputes.
Item #5: Was There a Recent Acquisition or Change of Control?
If your company was acquired, merged, or restructured shortly before your termination, your RSU agreement needs careful review.
Change-of-control provisions are fact-driven and heavily dependent on plan language. Many employees assume these clauses do not apply when, in reality, they were triggered quietly and never discussed.
Item #6: Are You Being Asked to Sign a Severance Agreement Releasing Claims?
This is often the moment leverage actually matters.
Employers do not offer severance out of generosity. They offer it to buy peace. If you are being asked to release claims, the value of those claims, including RSU-related leverage, should factor into the severance negotiation. Once you sign, that leverage disappears.
If you’re an executive preparing to negotiate your exit, read my guide: Executive Severance Negotiation Mistakes and How to Avoid Them.
Item #7: Do the Documents, Timing, and Conduct Tell a Coherent Story?
Step back and look at the whole picture.
RSU disputes are rarely won or lost on a single clause. They are won or lost on context, timing, disclosure, and paper trails. When those elements do not line up cleanly, that is where negotiation leverage usually lives.
Matt’s Legal Perspective
RSU cases are puzzles, not checklists. The leverage is usually in the gaps, not the fine print you were told not to worry about.
Many employees worry that pushing back will make things worse, so I address that concern directly in my analysis: Will My Employer Revoke a Severance Offer If I Try to Negotiate.
Final Thoughts on RSUs After Termination in California
Unvested RSUs are not automatically lost just because your employment ended, and they are not automatically protected either. In California, the strongest leverage does not come from wage statutes. It comes from contract law, implied covenant violations, and wrongful termination theories that change how lost equity is evaluated.
If you were laid off with RSUs in California and are negotiating severance or being asked to sign a release, how courts treat equity compensation can materially affect your leverage. RSUs often matter most at the negotiation stage, not after a lawsuit is filed and the window has closed.
Equity compensation is supposed to reward loyalty and performance. When employers manipulate timing, withhold plan documents, or quietly change the story after termination, California law still has something to say about it.
If you lost RSUs after termination in California, do not wait. These cases turn on documents, timing, and paper trails. Those details fade quickly, and once a severance agreement is signed, leverage usually disappears.
Frequently Asked Questions About Being Laid Off With RSUs in California
FAQ #1: If I was laid off with RSUs in California, do I automatically lose my unvested equity?
No. Being laid off with RSUs in California does not automatically mean you lose all leverage. While unvested RSUs are often forfeited under the plan terms, California law looks beyond forfeiture language when evaluating severance negotiations, contract disclosures, termination timing, and whether the employer is seeking a release of claims.
The key issue is not whether RSUs vested. It is whether the surrounding facts create negotiating leverage.
FAQ #2: Are unvested RSUs considered wages under California law?
Usually not. California courts, including the California Supreme Court, have held that unvested RSUs are generally not earned wages because vesting is conditioned on continued employment. That means wage statutes typically do not require payout of unvested RSUs after termination.
However, this does not end the analysis. RSUs may still matter in contract disputes, implied covenant claims, or wrongful termination cases, especially during severance negotiations.
FAQ #3: Can lost RSUs increase my severance package in California?
Yes, in the right circumstances. When employees are laid off with RSUs in California, lost equity often becomes part of the severance leverage analysis. Employers offer severance to reduce risk. If the facts surrounding termination create legal exposure, RSU value may influence the severance offer even if the RSUs were unvested.
This is especially true when termination timing is suspect, plan documents were not fully disclosed, or a release of claims is required.
FAQ #4: Does it matter how close my termination was to an RSU vesting date?
Yes. Timing matters. Termination shortly before a major RSU vesting event can raise red flags, particularly if the employer’s stated reason for termination is weak or inconsistent. Courts and negotiating employers pay close attention to timing when evaluating implied covenant and wrongful termination theories.
Timing alone is not enough, but timing combined with other facts can materially change leverage.
FAQ #5: How do change-of-control provisions affect RSUs after termination in California?
Some RSU agreements include change-of-control provisions that trigger accelerated vesting if the company is acquired or merges. Whether those provisions apply depends entirely on the plan language and the relationship between the transaction and the termination.
Employees laid off with RSUs in California after an acquisition often assume these provisions do not apply when, in fact, they may have been triggered quietly.
FAQ #6: Should I sign a severance agreement if I lost RSUs after termination in California?
Not without understanding the leverage you may be giving up. Severance agreements almost always require a release of legal claims. Once signed, that leverage disappears.
If you were laid off with RSUs in California and are being asked to sign a severance agreement, the lost equity, timing, and contract issues should be evaluated before you sign.
FAQ #7: When should I talk to a lawyer about RSUs and severance in California?
As early as possible. RSU cases turn on documents, timing, and paper trails. Those details fade quickly, and severance deadlines move fast. A short evaluation can often determine whether RSUs are irrelevant or whether they materially affect your severance leverage.
If you’re an executive preparing to negotiate your exit, read my guide: Executive Severance Negotiation Mistakes and How to Avoid Them.
Contact the Ruggles Law Firm at 916-758-8058 to Evaluate Your Potential Lawsuit
Matt Ruggles has a thorough understanding of California employment laws and decades of practical experience litigating employment law claims in California state and federal courts. Using all of his knowledge and experience, Matt and his team can quickly evaluate your potential claim and give you realistic advice on what you can expect if you sue your former employer.
Contact the Ruggles Law Firm at 916-758-8058 for a free, no-obligation evaluation.
Blog posts are not legal advice and are for information purposes only. Contact the Ruggles Law Firm for consideration of your individual circumstances.
