Ex-employees of gig-based ridesharing giant Uber (NYSE: UBER) have been slammed with tax bills on the stock offered to them by the company as part of their compensation. The former employees are claiming that the company shifted the tax rift onto them in a decision that came just before the company's IPO.
The offering of a lower initial salary with the promise of company stock is a common method of getting promising recruits at many tech startups that might not be able to afford the wages many professionals ask for. Uber was one such company that extended this offer to employees, an option that normally would have paid considerable dividends if employees executed well-timed trades. The issue facing former employees at Uber, however, wasn't bad timing, but rather the company shifting when stocks would be issued to employees and Uber's notoriously volatile stock price.
At its IPO, Uber shares were priced at $45. Uber issued its shares to employees immediately, meaning that they would be taxed at the current price. As concerns over Uber's business model and profitability mounted, the company's share price tumbled, and by the time the law-required lockup period ended and employees could sell their shares, Uber's price per share was $27.
Employees, who received their shares in 2019, are now being faced with sizable tax bills for shares that were priced at $45 when issued. Considering that Uber has never surpassed its IPO price and that it has only surpassed $40 a handful of times over the last year, many employees have missed out on tens of thousands of dollars. They are losing a sizable amount of the money they did receive from selling their shares to an inflated tax bill.
San Fransisco based lawyer Ray Gallo is preparing to file a class-action suit against the company and has stated that he has some 60 people signed on. Gallo has alleged that Uber's decision to shift the date it issued shares to employees constitutes a breach of contract.
"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 told NBC.
Gallo had asserted that Uber was well aware of the risk to employees when it shifted the date and alleged that the company knew of and failed to disclose problems with its business model that would likely drive its share price down. Gallo's assertions come from another class-action suit by investors, which asserts Uber withheld this information, which left investors unaware of the risk to their investment.