The status of RSUs after a layoff in California raise immediate questions for employees in the technology, startup, fintech, and enterprise sales sectors. Restricted stock units have become a major part of compensation, and companies use RSUs to recruit talent, motivate performance, and keep employees tied to long-term growth. Leadership presents equity as proof that you are essential to the company’s future. When a layoff hits, that same equity can turn into confusion and financial loss.
I’m Matt Ruggles, and I’ve been practicing employment law in California for more than 30 years. I regularly speak with employees whose layoffs occur only months or even weeks before major RSU vesting events. These are employees who hit sales targets, carried heavy workloads, supported product teams, and had no warning that the company intended to end their employment. They are often shocked at how aggressively employers enforce RSU forfeiture rules, even when the timing looks retaliatory, unfair, or connected to protected activity.
I wrote this blog to give clear guidance to California employees with restricted stock units who have been, or expect to be, terminated before full vesting of RSUs. This blog lays out the five most common problems employees face when their RSUs are at risk and the five steps you should take if you are in this situation.
If you are a California employee with RSUs and you were recently laid off or terminated, get clarity before you make any decisions. I help employees negotiate severance, understand their equity rights, and push back when employers mishandle RSUs. Call the Ruggles Law Firm at 916-758-8058 and I will explain exactly where you stand.
Five Most Common Problems With RSUs After a Layoff in California
When employees are laid off with unvested equity, the same issues surface over and over again. These are the problems that catch people off guard and cost them the most money.
Problem #1: What Happens to Unvested RSUs After a Layoff in California
Almost every equity agreement I have reviewed in more than 30 years of practice says the same thing. When your employment ends, all unvested restricted stock units are forfeited. It does not matter whether you were fired, laid off, resigned, or walked out the door on your own terms. The moment your employment ends, the company stops vesting and treats every unvested RSU as gone.
Many employees mistakenly believe they only lose their unvested RSUs if they are fired for cause. That belief is wrong. Most plans do not even mention cause in the forfeiture provision. The forfeiture applies no matter how the separation occurs. You can have a spotless record, strong performance reviews, and years of service. None of that protects your unvested equity once the company ends your employment.
Employees usually discover this only after they receive a separation notice that shows the vesting schedule stopping the day before the termination. By that point, the forfeiture is already locked in. Companies rarely revisit it, and HR will usually tell you they have no discretion to restore unvested shares.
To learn exactly how tech employees can protect equity and compensation, read my blog: How to Negotiate Severance in California’s Tech Industry.
Problem #2: Layoffs Before Vesting Dates and RSU Forfeiture in California
Employees regularly report that their employer ended their employment only days or weeks before a major vesting event. These terminations often follow strong performance reviews, major project contributions, or solid sales results. The timing is rarely accidental. Companies understand exactly when your restricted stock units will vest, and they know the financial impact of cutting you loose before that date.
This pattern raises serious concerns. It becomes even more suspicious when the termination follows a wage complaint, a commission dispute, a request for protected medical leave, or a report of discrimination or retaliation. In those situations, the timing may show that the employer wanted to avoid paying out equity that you were close to earning.
Problem #3: How Verbal Equity Promises Affect RSUs After a Layoff
Employees at startups and early-stage companies often rely on verbal assurances about future equity. They hear comments like “You are part of the long-term team” or “You will be rewarded when we win.” These statements sound encouraging, and they create the impression that meaningful equity is guaranteed. In reality, they rarely mean anything once a layoff occurs.
Unless a promise about restricted stock units appears in a written document that clearly defines what you will receive, the law gives it almost no weight. Startups often use vague language to attract talent, keep morale high, or delay actual commitments. When the company decides to cut staff, those verbal assurances vanish. Employees then learn that the employer never intended those promises to survive a termination, and the company falls back on whatever the written equity plan and grant agreement say.
If you were relying on verbal promises, treat them as a warning sign. What controls your equity is the written plan, not what someone told you during a meeting or a hiring conversation.
To study a real negotiation and understand the tactics behind it, read this case study that I wrote: How to Negotiate an Executive Severance Package Case Study.
Problem #4: How Equity Plan Documents Control RSUs After a Layoff
Employees rarely realize how many documents control their restricted stock units until they are already facing a layoff. Most employees receive an offer letter, an equity plan, and a grant agreement. Each document controls different rights. Each one uses different language. None of them are written for employees who need clarity about what they actually own.
Here is how the confusion usually plays out.
The Offer Letter
The offer letter often describes your equity in general terms. It may simply state that you will receive a certain number of restricted stock units subject to the company’s equity plan. Offer letters rarely explain vesting schedules, forfeiture rules, or acceleration rights. They create the impression that you will receive equity as long as you work hard and stay employed, but they provide no real protection.
The Equity Plan
The equity plan is the foundational document that sets out the company’s rules. It usually contains the true forfeiture language, the definitions of vested and unvested shares, the conditions for acceleration, and the rules the company uses to deny equity when employment ends. The plan often favors the company and gives it broad discretion. Employees rarely read it, and HR rarely explains it.
The Securities and Exchange Commission explains that RSUs are controlled entirely by the written equity plan and grant agreement, and employees should rely on those documents rather than verbal assurances when evaluating what happens to their shares at termination.
The Grant Agreement
The grant agreement contains the specific terms for your award. It includes your number of shares, your vesting schedule, and the exact conditions that must be met for your restricted stock units to vest. Many employees assume the grant agreement is the controlling document. In reality, the agreement usually states that it is subject to the broader equity plan. That means the employer can point to the plan whenever it wants to deny vesting or enforce forfeiture.
If your plan documents conflict, assume the company will interpret them in the way that allows it to pay you the least.
To see how executives negotiate exits without burning bridges, read my post: Negotiated Exits for Executives in California.
Problem #5: How “For Cause” Terminations Impact RSU Rights in California
Some equity plans let companies wipe out even vested restricted stock units if they label the termination as “for cause.” That single phrase can destroy equity you have already earned. When a vesting date is approaching, some employers try to stretch the meaning of “cause” to fit whatever narrative allows them to keep your shares.
The pattern is predictable. An employee with a clean record suddenly receives accusations of poor performance, rule violations, misconduct, or vague behavior that never appeared in any previous review. These allegations often show up for the first time just before a major vesting event. The company then uses the “cause” label to eliminate RSUs that would have vested soon or to wipe out equity that is already vested but not yet delivered.
Employees routinely assume that “cause” must mean something serious. In many plans, the definition is written so broadly that the company can claim cause for almost anything. After a layoff, this creates a direct threat to your equity and gives the employer a financial incentive to manufacture or exaggerate problems at the last minute.
To understand the key red flags hidden in most agreements, read my blog post: Top 10 Things to Watch Out For in a Severance Agreement.
Five Steps to Protect Your RSUs After a Layoff in California
Step #1: Gather Equity Documents to Protect Your RSUs After a Layoff
The first thing you need to do after a layoff is secure every document that relates to your restricted stock units. Do not wait for HR to provide anything. Do not trust that your online portal will remain available. Many companies shut down employee access within hours of a termination.
Download everything. Pull your offer letter, the equity plan, your grant agreements, every email from HR about equity, old performance reviews, and screenshots of your vesting schedule. Save copies of any online dashboards that show vesting dates, share counts, and grant details. If you have notes from meetings where equity was discussed, save those too.
These documents are the foundation of any legal review. Without them, you cannot evaluate what you were promised, what you earned, or whether the company followed the rules. If you cannot access the materials after the termination is processed, you give the employer control over the entire narrative.
To understand what every employee should know before signing anything after a layoff, read my explanation: California Severance Negotiation After Layoffs: What to Know Before You Sign.
Step #2: Get Written Confirmation of RSU Status After a Layoff
Do not rely on verbal statements from HR. Get everything in writing. Companies make mistakes and they often make inconsistent statements about vesting dates, forfeiture, and cause determinations. Email HR or the equity administrator and require written confirmation of your final vesting date, the number of shares the company treated as forfeited, whether the company labeled the termination as cause, and whether any acceleration applies under the equity plan.
California employees have the right to clear and accurate information about their compensation. Several sections of the California Labor Code protect an employee’s right to understand how final pay and earned compensation were calculated. Your equity is part of that picture. Written clarification locks the company into a position and prevents them from changing their explanation later.
Step #3: Check Layoff Timing for RSU Retaliation Issues in California
The timing of a layoff can reveal more than the company wants to admit. California law protects employees who complain about unpaid wages or commissions under the Labor Code. It protects employees who take medical leave or request accommodations under the Fair Employment and Housing Act (FEHA). It protects employees who report illegal conduct. It protects employees who oppose discrimination or harassment.
California Labor Code 1102.5 prohibits employers from retaliating against employees who report illegal conduct or objections to unlawful practices, and timing a layoff to avoid an RSU vesting event can be evidence that the employer violated these whistleblower protections.
If your termination happened shortly after you engaged in any protected activity and right before a vesting date, you may have leverage. Employers can legally require continued employment for equity to vest, but they cannot use a termination as a tool to punish protected conduct or avoid paying earned compensation.
To understand why FEHA wrongful termination claims create serious financial exposure for employers, read my blog: Wrongful Termination Lawsuits Under FEHA: A Costly Gamble for Employers.
Step #4: How to Negotiate for RSU Vesting or Acceleration After a Layoff
Employees often assume there is no room to negotiate equity. That assumption is wrong. Employers sometimes agree to partial vesting, monthly vest-through, or cash equivalents, especially when the employee was in a senior role, a high-value sales position, or an early-stage startup where equity was a major part of compensation. Employers also negotiate when the layoff looks rushed or poorly documented.
You will not receive anything you do not request. Companies rarely volunteer concessions. You need to ask for partial vesting, for acceleration, or for a monetary replacement. California law does not require employers to offer these terms, but the risk of a potential FEHA or Labor Code claim gives employees bargaining power. Use it.
To see the negotiation process from a lawyer’s perspective, read my outline: How to Negotiate Severance Like an Employment Lawyer.
Step #5: Talk to a Lawyer Before Giving Up RSU Rights After a Layoff
Severance agreements are written to benefit the company. Almost all of them require you to sign a broad release of claims. Once you sign that release, you waive your rights to challenge an unlawful termination, retaliation under the FEHA, discrimination, wage violations under the Labor Code, miscalculated commissions, and any mishandling of your restricted stock units.
If the layoff timing looks suspicious or the employer is pushing you to sign quickly, stop. Equity issues increase the value of a potential claim and give you more leverage than you think. An attorney can review your documents, assess whether the FEHA or Labor Code protections apply, and calculate how much leverage your equity loss creates.
Do not sign before you understand what you are giving up. Your RSUs may be worth far more than the severance check in front of you.
To learn what matters most when choosing the right lawyer for your case, read my advice: How Do I Select a California Employment Lawyer?
If your RSUs are at risk and you are trying to understand what you keep, what you lose, and whether you have any leverage, talk to someone who deals with equity issues every day. I negotiate severance for California employees and can help you understand your RSU position after a layoff. Call the Ruggles Law Firm at 916-758-8058 to discuss your situation.
RSU Layoff FAQs for California Employees
What Happens to Unvested RSUs After a Layoff in California?
In almost every equity plan I have reviewed, unvested restricted stock units disappear the moment your employment ends. That rule applies to layoffs, resignations, and terminations. There is no requirement that the employer prove cause. If the equity was unvested when your employment ended, the company treats it as forfeited.
The only way to challenge that outcome is to analyze whether the timing of the layoff violated California Labor Code protections or the Fair Employment and Housing Act. If the timing points to retaliation or discrimination, you may have leverage to negotiate for value.
Can Employers Time Layoffs to Avoid RSU Vesting in California?
Employers cannot legally retaliate against you for protected activity under the Labor Code or the FEHA. They cannot end your employment to punish you for wage complaints, medical leave, disability accommodations, or reporting illegal conduct. However, many employers do time layoffs in ways that conveniently avoid vesting.
If your termination fell right before a vesting event and close to protected activity, you may have a claim that gives you negotiating power. The closer the dates line up, the more likely it is that the timing was intentional.
To see how California’s anti-discrimination laws protect employees in real-world situations, read my blog: FEHA: How It Protects California Employees.
Do Verbal Promises Protect RSUs After a Layoff in California?
No. Verbal promises carry almost no legal weight. Startups and growth-stage companies often make sweeping statements about future equity, long-term rewards, and team ownership. What matters is the written equity plan and your grant agreement.
If the written documents say your unvested RSUs vanish when employment ends, that is the rule the company will enforce. If you relied on vague statements, those may support a theory of misleading conduct, but they do not override the plan itself.
How Do Equity Plan Documents Impact RSUs After a Layoff in California?
Most employees have three documents that dictate their equity: the offer letter, the equity plan, and the grant agreement. These documents rarely align. When the language conflicts, the equity plan usually controls because it is drafted to give the company the widest authority. After a layoff, employers rely on the plan to justify forfeiture or deny acceleration. If the documents conflict in a way that misled you, that inconsistency can be used as leverage in negotiations or legal claims.
Can Employers Cancel Vested RSUs After a Layoff by Claiming Cause?
Some equity plans let employers wipe out even vested shares if they label the termination as cause. When a vesting date is approaching, some employers suddenly discover performance issues or policy violations that never appeared before. Under the FEHA and the Labor Code, a false or exaggerated cause allegation can be evidence of retaliation or discrimination. If your employer used a cause label to destroy equity you already earned, you should have the plan documents reviewed immediately.
Should You Negotiate Severance Based on Lost RSUs After a Layoff?
Yes. When restricted stock units are involved, the value at stake is often higher than the cash severance on the table. Employers know this, which is why severance agreements always include broad releases of claims. If the timing looks retaliatory, if the employer claimed cause near a vesting date, or if your plan documents conflict, you may have leverage to negotiate partial vesting, acceleration, or a cash payout. Do not sign a release before you understand the value of the equity you lost.
Final Thoughts on RSUs After a Layoff in California
If you have been laid off and you hold restricted stock units, it is normal to feel confused and worried about what happens next. Most employees in California who lose their jobs learn very quickly that RSUs do not work the way they expected. Unvested shares vanish the moment employment ends. Companies time layoffs to avoid vesting. They rely on confusing documents. They stretch definitions of cause. None of this surprises me, because I see it every week.
You do not have to navigate this alone. If your layoff happened near a vesting date, if the company claimed cause out of nowhere, or if you believe your rights under the Labor Code or the Fair Employment and Housing Act were violated, you may have more leverage than you realize.
If you want help evaluating what happened and what you can do next, reach out to me at The Ruggles Law Firm. I will review your documents, analyze the timing, and tell you the truth about your options.
Contact The Ruggles Law Firm About RSUs After a Layoff in California
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.
