Optional illusions

Stock options are the grease that keeps the wheels of our New Economy turning. In the high-stakes race to attract IT talent, many high-tech companies offer candidates attractive and potentially lucrative stock options as a part of compensation packages.

But what happens when promised stock options do not materialize, thanks to an employee dismissal or the IPO-unfriendly market? More and more, employees turn to the courts to get the value of worthless or withheld stock options.

Stock option stakes

"Stock options are potential damages," says Pat Lucas, chair of the litigation group for Fenwick & West, in Palo Alto, Calif. Several employee lawsuits worth millions -- based on claims of stock options owed -- have been filed or litigated recently. The defendants in these "disappointment suits" make up a who's who of dot-coms and high-technology players, including InfoSpace, Oracle, DoubleClick, and Qualcomm.

Courts, depending on the circumstances surrounding the lawsuit, have granted awards in some cases and have dismissed others. But experts agree the "disappointment suit" trend is growing.

According to the U.S. Bureau of Labor Statistics, during 1999 5.3 percent of employees at publicly traded companies received options as a part of a compensation package. Despite this small number, stock options hold great power: They have changed the dynamics of termination lawsuits, making them the key monetary issue and the driving force behind many of these suits.

"In about the last year or two years, wrongful termination suits in Northern California have been all about stock options," says John C. Fox, chairman of the employment and labor law group at Fenwick & West. "Every week $5 [million] to $10 million lawsuits cross my desk."

Employees believe they have been wrongfully fired and are suing to get the compensation they feel they deserve. Historically wrongful termination cases revolved around claims of discrimination. Awards were based on back pay, damages, and court costs.

Not today. Wrongful termination suits often center around an employee who left a company under conditions perceived as unfair. The "wronged" employee, who often worked long hours for less than market pay, later files suit to recoup the value of stock options he or she might have received if everything had worked out as planned -- and promised.

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