Employees sue Uber over additional tax liability following stock price decline

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Riding-hailing majorUber Inc has reportedly been sued by more than 200 current and former employees, accusing the US-based company of losing a "risky bet" that added millions of dollars to their tax liability following its flotation in 2019.

According to a Financial Times report, the employees submitted a formal complaint to the California Superior Court on August 27 alleging that the company had knowingly and without permission taken steps that put its employees at risk of larger tax bills in the event that Uber’s stock price went down. The stock did take a beating in the months after its initial public offering (IPO).

Silicon Valley companies, like those in other parts of the world, offer employees stock options, which not only makes them a part of the company's growth story but also brings with it a small fortune once the firm goes public. These stock benefits issued to the employees, known as restricted stock units (RSUs), can be traded publicly once an initial lock-up period passes.

Uber employees’ stock was set to be issued at the end of a six-month lock-up period but just days before the flotation, staff with RSUs received a company memo explaining the issuance would be “accelerated” to the date of the IPO, the complaint said.

The decision to push back the issuance of shares to employees meant that Uber could lock in the amount of tax it had to pay on behalf of its employees, which generally bodes well for attracting potential investors.

The report says that Uber, at the time, described it to be in the best interests of the RSU holders as well as the company.

However, in such an event, employees have to pay income tax based on the IPO price rather than the price at which they actually sell the stock. Hence, a fall in stock price meant additional tax liability for the employees.

The lawsuit claims that Uber's decision to accelerate the issuance of restricted stock units created an additional liability of about $8 million for the employees.