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The Skype stock-option controversy: It’s hard to write plain-English legal documents

Background: There’s a controversy in progress about Skype’s apparent stiffing of some former- and soon-to-be-former employees. Skype will be exercising its “call” option, its right to repurchase those employees’ shares of stock at the employees’ cost. That means the employees won’t make any money on their stock and/or stock options when Microsoft acquires Skype.

Some are saying that Skype’s employee stock purchase plan documents and contracts were incomprehensible. By no means do I want to defend Skype here, but the prose in the linked documents isn’t especially incomprehensible, at least not for documents of this type.

Everyone pays lip service to the ideal of plain English (not least to head off later public floggings for allegedly-intentional obfuscation). But it’s hard work to take a complex if-then-else concept and render it in plain English. [1] To be honest, a lot of lawyers just aren’t very good at it. And here’s the real rub: Few clients are eager to pay lawyers to spend extra time on better readability.

On the merits of the Skype stock controversy:

  • It’s not unusual for the employee stock plan of a private company, like Skype, to include a “call” option that gives the company the right to repurchase employee-owned shares if the employee leaves the company. That makes sense when you think about it: if you’re a private company, you don’t want a lot of ex-employees owning dribs and drabs of your shares, especially if you’re worried about the 500-shareholder limit (under current U.S. law), which if exceeded means you have to file public financial reports.
  • On the other hand, for a company with an upcoming exit to buy back the shares at the employee’s cost, instead of at a good-faith estimate of the stock’s then-current value — well, that does indeed seem unusual. Some documents of this kind provide that, IF: The company wants to do its buy-back EITHER: (i) after an exit is announced, OR: (ii) if an exit is announced within 30 days or so after the employee’s departure; THEN: The employee is entitled to the exit pricing for the buy-back.

Again, not to defend Skype, but conceivably they might not have had a choice about the buy-back price, at least not without jeopardizing some kind of favorable income-tax treatment. If I had to guess, I’d venture that, X number of years ago, some overzealous junior lawyer decided to draft the relevant documents so as to put the company in the strongest position s/he could. Now that zealousness may be tying their hands. I stress that I’m speculating here.

Notes

[1] If you have occasion to write a complex if-then-else sentence, try using all-caps and punctuation like this: IF: It rains at least one inch today but not more than two inches; AND: It doesn’t rain tomorrow; THEN: You will turn on the sprinkler system tomorrow; AND: You will not do so the day after.

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