The key to staying on good terms with them is being respectful and polite while you make your case. If you remain respectful to them, they will remain respectful to you. If you let them walk all over you, you're likely to lose their respect and may actually end up on worse terms with them.

EDIT: Even if you end up with no agreement, your situation still has an option value, a valuation exercise I'll leave to the reader. There's a reason they want that release, and that reason only matters if they become a successful company.

They don't want a mess if things get big, so OP has little to lose by offering this deal. There's a good chance the founders accept, too, since (a) they're high on their company's prospects, given their thriftiness with equity, and (b) negative press always sucks, and exercising the "option" would generate negative press.

I'll disagree, though, and say OP should ask for 11 months of vesting--that's what OP earned, after all. It'd be harder to get that extra month, given that OP wasn't there for a full year and the founders have worked to hang onto as much equity as possible.

EDIT: Consult with a lawyer when attempting to negotiate. A lawyer can help you get through the process while avoiding any suggestion of extortion, blackmail, etc. (which, unintended or otherwise, will torpedo you and ruin your rep).

They're trying to get a "sweetheart deal" for themselves -they know you're not represented, and they figure it's worth a shot. The signature is irrevocable, so be very careful with it.

You should get an employment attorney to give you advice before you respond, and if he recommends it, have him fire off a nastygram to the company.

Showing the company you have representation is likely to make the company sit down seriously and give you something reasonable. No startup can afford to spend its $$$ and attention on legal back-and-forth.

I know you said money is tight, but an employment attorney doesn't have to be expensive. You'll get free advice in a consultation, and if you choose to engage them, usually ~$500-1000 will buy you nastygrams to the company from the attorney, a couple phone calls with their attorneys, and advice on a settlement. Doty Barlow is a firm I've used for employment advice - small group with lower rates but solid guys. (I have no personal connection or financial incentive for an endorsement).

Good luck, it's hard to lose your "baby", and worse to be hurt like that. Just keep the dispute private, and be a gentleman, and you'll walk away smelling like a rose :)

It's not just about cost though, it's attention. Think of the google/oracle trial: Andy Rubin, Eric Schmidt, Larry Page, etc all have better things to do than be in a courtroom.

Having said that, looking back at it now, it is perhaps a good thing. I went on to have much better success elsewhere, while they had success in their business as well. Do I feel bitter? maybe in the past, but now I can't be brothered. He still send emails 2-3 times a year taunting me about his success with different email addresses which I simply send it to my spam folder.

Most importantly, what I learn is that, sometimes things just don't work out. The reasons for falling out could be many and weird. For my case, my 2 other founder friends are people who prefer 'Yes' men who agree with their groupthink all the time. I'm not one of them and hence it is not surprising we have to part (Although it turn out for the case which I'm arguing against and got them angry, I turned out to be correct as time passed)

It is up to you if you want to chase for more compensation. You may wish to consult a lawyer if you deem it's worth it. For me I don't want to waste further time hence I did not.

But as for the deal, I think it's pretty reasonable given that they are exercising their ability to screw you over. Assuming you signed the boilerplate options paperwork everyone uses, you signed a contract that explicitly stated that you get nothing if you are let go before 12 months. They gave you 3.5/11 of what you were supposed to get. That seems pretty reasonable compared to 0, which is what you are entitled to.

Best of luck. Try not to dwell too much on this and I'm sure you'll land on your feet. As for your employer, karma will surely bite them in the ass if they pull stunts like this and screw over employees. Shame on them.

And if this dispute spills out into public -- "I want to protect the identity of my former employer for the time being" -- then everyone is usually tainted by the end of it. Once it's public, the founders will probably try to justify their decision (by smearing the OP, more or less politely and more or less truthfully), the OP (angry at being smeared) will say something still more stupid, and it will all be preserved for posterity, regardless.

I have no idea what the OP is entitled to, legally or in-all-fairness. But please think through every step very carefully before (and while) burning bridges.

Because they want somebody out of the company doesn't have to mean that they're shady, or that they're angry. I can think of dozens of reasons why you might want to get rid of someone that wouldn't have any bearing on them personally.

Assuming the best when a person shows you the worst makes you a rube, begging to be taken.

We're not talking about a friend who lied about why he couldn't come to your wedding or babysit your kid.

You don't get more "bad faith" than firing somebody right before you were about to owe them a lot of money.

When a person dicks you over, the best thing to assume is that they are a dick. This not only protects you in the future, it equips you to deal with them in the present. If you wish and hope that underneath they really mean well, you will only be disappointed and ineffective.

If they were acting in good faith, they would have A: fired him sooner, or B: given him the proportional share of what they originally agreed.

Leaving aside bankruptcy or serious, newly-come-to-light malfeasance on behalf of the employee, the only explanation of a firing right before the cliff, AND a disproportionally low offer (just over 25%!), is bad faith.

Even if they decided he's a terrible fit and they hate him, it's their responsibility for not taking action sooner. They need to fulfill their side of the agreement. Otherwise they are bad actors, acting in bad faith. It's just that simple.

NB: when we fired 2 employees who were not working out at all, I paid them both severance, even though I had zero obligation to do so. Why? Because I believe in acting in good faith. Yes, it hurt my business, but it was the right thing to do.

So you have two months to find a job, no biggie if you're any good and have startup experience in the SF market. Actually even if you aren't that good you should be OK. One advantage to keeping things friendly with your ex-bosses is that you can use them as references for your interviews. I would talk to them and ask them if they could give you really great glowing reviews, most people will do that for you if you keep things friendly.

Your new full time job is to find a job, it's a crappy job but at least you can do it from home in your undies. I've been there and it's really not that bad. One thing to remember is that you do have that two months runway, feeling panicked you might be tempted to take the first crappy offer that comes your way, but a job is a big portion of your life for years at a time so you should be as choosey as you can be and try to get something that you can live with and be happy.

No, he's not lucky at all. Maybe a tiny little less screwed.

However, if you tell your former employer that you feel 11/12 of your cliff in equity is fair; otherwise, you'll pursue a law suit, my guess is they'll pony up without you having to take this any further.

IANAL and this isn't legal advice, but I want to comment on your wording. You should word the "threat" as saying that you may pursue a lawsuit, not you will.

The difference is really subtle to most people, but I once heard a story, on HN in fact IIRC, about someone who was sued because he said he would sue a company and then didn't follow through.

The company's claim was that they had been operating under the assumption they were about to be sued, and had incurred legal fees and lost productivity as a result. The company won.

Basically, word it as lawyer-friendly as possible. You want to let them know that you're seriously considering options that they would prefer you didn't, but you don't want to legally commit yourself to a particular action.

Again, IANAL, and this is based on my faulty recollection of a comment I remember seeing a while back.

Lawyer != lawsuit and it doesn't have to make things confrontational. It is just smart. If they are smart they talked to a lawyer about how to let you go.

I strongly recommend that you talk to someone like him. An experienced lawyer will be able to put this in perspective for you in short order: industry norms and expectations, legal options, negotiating tactics.

This could go all sorts of ways. On one memorable occasion, this lawyer wrote a short letter and got me $20k in wages owed. On others he's advised me to just walk away.

I'd also suggest you consider cash instead of equity, especially payment for expenses. You may prefer a longer runway (or a month recovering on a Mexican beach) instead of more lottery tickets.

Thankfully, it's a pretty easy conversation to have with them. Tell them that working for them has left you in a financial straight. Then ask them if they could include any sort of cash in their severance package.

First, you don't have to admit that you talked to a lawyer. You can just get their advice. Second, as a hiring manager, I have a lot more respect for people who are smart enough to get advice when they need it. Third, lawyers are professional negotiators, so talking to one before you negotiate something can be immensely valuable. Especially when negotiating with much more experienced people.

Screw finding a lawyer.

Do point out that you were leaving the money with the company, and would they mind horribly if you submitted your last 2-3 months' expenses (or whatever a sane expense period is) so that you're less out of pocket.

Don't waste time fighting it, because if they do well they'll be able to afford to squash you and if they don't then there'll probably be no money left by the time you win anyway.

The last paragraph is the most important; if it matches up to your view of current reality then it really doesn't matter who's in the right or wrong here, what matters is it isn't worth your while to pick a fight over it.

I'm not a lawyer, but a bit of searching online suggests that the behavior of the company may be illegal in California under a law called ERISA (see the third bullet point under "ERISA Violations" on http://www.lawyersandsettlements.com/case/stock_option.html). The onus would presumably be on the employee to establish he was fired in order to avoid having his shares vest, but if the company had no other reason to be dissatisfied with his performance and never communicated any concerns before his termination he might have a case.

Personally, I think he should ask for his full year of equity and try exchanging equity for severance if they are reluctant. The thing to remember is that he might only have been on good terms with one of the founders, which means there are group dynamics to how any action he takes will be interpreted on their side. It may also only be one of the founders who cares, and the offer may be a negotiated settlement offered from a negotiation between them rather than any specific desire to formalize anything and avoid a lawsuit.

Outside of what others have suggested, I recommend spending a year or two working at a larger company to build your reserves, and to build confidence that you can go and do something like this again. You can keep exploring opportunities on the side while building your bank account, resume and experience.

Since people out of the company can have their stock diluted to nothing, and you are on bad terms with the founders, I would suggest the business expenses you still have records for instead 3.5 months of equity.

I am disinclined to sue people, fight with them, etc. Go ahead and ask for more and see what you can get. Then move on. Work on building a life for yourself. Try to learn from your mistakes so you don't repeat them. (If you do it right, you get to make entirely new mistakes on a regular basis.)

Best of luck.

Take time to honestly assess if you could have done things better. Try to resolve your emotions with the situation as quickly and cleanly as you can to get your thinking straight and take care of your financial situation.

Dealing with lawyers seems like a distraction unless there are contracts with your name on them or loans/financing.

Good Luck but ablove all remain calm and methodical, don't panic. Like they said in Wall Street " never let them see you sweat "

Things to take away: - first employee =/= founder. - negotiate stock or wage before you start. Always. - research the founders and ask their past staff. - trust your gut if you think there is something fishy. - learn from this experience and move on.

Move on. Don't mull over it. It's actually a great time to be into startups… there has never been such a drought of developers. Hell, maybe learn how to code, while you're at it.

It's not clear that OP DOESN'T know how to code.

Also, OP wasn't employee #5--he or she was employee #1, and sacrificed a year of earnings as a result. You don't make that sacrifice, then roll over when the founders unceremoniously let you go a month before you're due to vest. I say fight for it.

What position are you in professionally after this experience?

Meditate a lot on those two questions. Remember that there are countless stories like yours, and this does not prove that the people in charge are assholes, just that they are in the throes of the startup rollercoaster. They are probably failing all over themselves, and you were an easy fall guy. It does not excuse their behavior, but this is a very common circumstance.

If the answer to the first question is that you want to get another job quickly, take the high ground and ask them how you can make things easier AND how they can help you. If you did nothing unscrupulous they should be willing to help you find another position and move on, and you should be expected to put them in a position where they can honestly look future investors in the eye and say we negotiated a settlement with past employees that will not screw us and your money in the future. If you did not help them succeed at the level they needed to (and this does not say you are a bad person, it just says you did not succeed at the level they needed you to) then it is good that your future has been freed up. It is honest for both parties to look at it this way.

If the answer to the second question is that you are in a bad position after this, then you really need to make sure you act responsibly and rationally or you could have a very hard time the next time you interview. Saying to an interviewer "I can't have you talk to the people I worked with the last two years..." is a huge red flag. The best advice I ever got was when I was on the playground and another kid punched me in the chest and the teacher had us understand we were equally responsible. I was livid, and she was right.

Taking the high road at this point in your career is a great opportunity for you because this situation is common and there is nothing worse than working with someone who has a chip on their shoulder because of something like this. If you become the type of person who can get through this and take the lessons well, you will prove yourself as a valuable employee anywhere.

Give them a hint (but don't say you are talking to a lawyer) that if the arrangement is unreasonable, you'll not just walk away. You'll spend the time and energy to right the wrongs. Give them hints that investors, public laundry, and/or legal means are within consideration (but don't do any of these yet) -- even at the expense of potentially not getting anything at all.

I think if the founders are serious about continuing with the startup, they'll think twice about this. What you are asking them is to just be reasonable, so they shouldn't have a problem with it. They would be far more worried about all these things you hint at (investors, public laundry, legal means).

If they counter with something -- say 6 months. Take it. Heck, if you do this correctly, you lose no karma, not even the relationship with them.

BTW the equity... probably worthless anyway. So, the other approach is to simply move on. I agree with others that this may actually be the better route, but it depends on your situation.

(I AM NOT AN ACCOUNTANT, but) If they give you equity, and the company has a set valuation (if they took funding), then the equity has an established value that you pay taxes on (cash out of pocket).

Something I did not mention is that the CEO was cultivating an overly confidential culture. Over the past couple months I did not know who our clients were, how much they were paying, status updates from our software development. It felt like I was mindlessly rowing a canoe with blinders on and earlplugs in. While this definitely is one management strategy, I don't agree with it. As a result I think I got a little unplugged and they didn't like it.

I don't want to reveal what we sold yet to preserve confidentiality for them.

I'd take the 3.5 months worth of equity just in case and start looking for another job.

(Oh, and next time do your expenses and take a sustainable salary! Early-stage employee doesn't equal martyr.)

Anyway, the right answer here is to work for someone who doesn't pull crap like this. And if the OP was competent at his job, I would hope the other employees have seen what happened and are properly aware of their employer's shady ethics. In any regard, this is just bad business and likely killed morale to some degree.

OP, listen to kls...now that you've seen how this can go you will really be a lot stronger when you negotiate your next job. There's different kinds of options available too, but unless you ask about which kind you get, you'll just be given the default (i.e. cheaper for the company).

If you feel you were wronged, sue them for what you feel is right and move on as quickly as possible. This entire situation sounds insane. Either you or they are completely off the rocker.

PS. If I read between the lines correctly, the "tiny equity package" basically reflects their opinion of your contributions to the business, i.e. it wasn't much. This in turn implies you were let go because of that rather because "things changed" and you weren't a "good fit anymore". If this is close to reality, then I can certainly appreciate the general mood you are in, but take it as a valuable experience and learn from it. If money is an issue, just tell them exactly that - "I'm in a crunch, please help." The chances are that they will. I saw an absolutely abysmal programmer get hired back on a short contract as a favor, because he would've lost his home otherwise. Just don't lawyer up for crissake (or do it very discreetly), that's an ass move that will not make things any better.

Lawyers scare people, can't hurt.

2. As a minority shareholder, everything revolves around what they are contented to give you. Facebook movie got something right - if majority want to screw u they can (depending on how much effort they are willing to spend doing so!)

3. How can you keep a good relationship with them? - e.g. I work some hours per week for free and keep on good terms with founders to retain my minority shareholding.

I am an engineer type, so read above as random engineer dude advice :-)

Sounds like they used a young guy to do their dirty work while they were small, and once they got funding and didn't need someone who had rights to such a large portion of equity in the future, brought on people who would take less.

Pretty sketchy.

You took a gamble on a startup and you lost. You're not a unique or special snowflake in this regard. Brush yourself off, maybe take a paying position to build back your reserves, and maybe attack the next gamble with some more wisdom.

1. EXPENSE REIMBURSEMENT LAW: You didn't say where you're located, but check out California Labor Code section 2802, especially subdivision (c), at http://law.onecle.com/california/labor/2802.html:

--snip--

(a) An employer shall indemnify [that is, reimburse] his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.

(b) All awards made by a court or by the Division of Labor Standards Enforcement for reimbursement of necessary expenditures under this section shall carry interest at the same rate as judgments in civil actions. Interest shall accrue from the date on which the employee incurred the necessary expenditure or loss.

(c) For purposes of this section, the term "necessary expenditures or losses" shall include all reasonable costs, including, but not limited to, attorney's fees incurred by the employee enforcing the rights granted by this section.

--snip--

2. WRITTEN AGREEMENT? You didn't say whether you had a written employment agreement, stock-option agreement, etc. Any of those might contain a mandatory-arbitration clause; a jury-trial waiver (probably unenforceable in California); and/or other relevant provisions.

3. TIME SUCK: Lawsuits and arbitrations against former employers are a huge time suck for all concerned, but especially for the (former) employee. Ask yourself whether, at this stage of your career, the upside of equity in this particular startup justifies your making such an investment of your time. Because no matter what happens, you'll never get that time back.

4. SIGNAL TO FUTURE EMPLOYERS: If you file a lawsuit, future prospective employers won't know who's right or who's wrong. All they'll know is that you've sued a former employer. (They may well find that out when they run a background check.) That will trigger the fear that someday you might sue them. And that in turn could color their decision whether to hire you, or instead to hire the next person, who isn't suing their employer.

5. THE REST OF THE STORY: Your former employer's founders will have a different perspective. If you sue them, there's absolutely no doubt they'll tell their side of the story. Consider whether you want that made a matter of public record.

6. BRIAN REID EXAMPLE: Check out Brian Reid's story: He was fired from Google at age 52, nine days before the IPO. His options apparently would have been worth $10 million at the IPO; presumably they'd be worth a lot more now. His lawsuit against Google for age discrimination has been pending for years. Dr. Reid has a clear upside, plus what the court of appeal felt was a triable case, i.e., a case that at least had sufficient merit that it deserved to be decided by a jury instead of being summarily tossed out. From the facts you've given, it's not clear that either of those things is the case for you. http://en.wikipedia.org/wiki/Brian_Reid_(computer_scientist)...

7. KEEPING GOOD RELATIONS: Other commenters have made good points about the upside of keeping a civil relationship with your former employer, in the (perhaps-vain) hope that in the future they'll give you a decent reference or perhaps someday even want to hire you again.

8. USUAL DISCLAIMER: I'm not your lawyer, the above isn't legal advice because we don't have all the facts here, etc., etc.

I thought when a founder leaves you get some sort of payout for time and cash put in?

However, move ahead and start work on your next thing. Don't delay--it is very easy to sit and stew.

Here is what works for me in serious times of stress.

Spend most of your energy working on your next deal.

And then, say, one hour per week, allow yourself to internally mope about this. I am quite serious. I call it "the hour of sniveling", and when that is done, you haven't necessarily solved a problem, but you have let those feelings express themselves, but then move forward.

(I admit this sounds very goofy, but I use this approach to positive effect.)

These shares might be worth a lot in a few years time, or (more likely) they might be worth nothing, they are therefore not necessarily worth sacrificing lots of your time and money over, unless you are convinced that they will soon be worth millions. Remember also that even if you get these options, the board could still dilute them to virtually nothing very easily. They could easily make them worthless by fiat (by expanding the shares pool and assigning you no more) if they want to in future.

What's important for you is to move on with your life feeling you have made the best of a bad situation, rather than wasting energy on a potentially fruitless lawsuit or public spat, neither of which will do your career or character any good. You don't want to end up in Jarndyce v Jarndyce for the next few years and waste some of your life, only to find at the end you have some worthless bits of paper and lasting bitterness.

To leave on good terms you might ask that the equity position allow you to claim 'advisor' status. Let them know you will continue to advocate for the company and are more than happy to answer their questions and handle the handover. You might also consider crafting an agreement whereby you receive a revenue share or additional equity for any business you generate for the company.