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Chicago — An Illinois appellate court has sided with Citigroup Inc. in ruling that brokers nationwide who agreed to participate in a discounted stock plan can’t reclaim unvested compensation forfeited when they left the company. Courts in Georgia, New Hampshire, California and New York are reviewing the legality of the Citigroup stock program and similar programs under state wage laws. The rulings could affect employee stock plans across the United States. The 38 plaintiffs in the Illinois class action will appeal the decision, which reversed a trial-court ruling, to the Illinois Supreme Court, said Brad Nelson, an attorney with Chicago-based Schopf & Weiss who represented the group. Kim v. Citigroup, No. 1-05-3568 (Cook Co., Ill., Cir. Ct.). Matt Kipp, an attorney in Skadden, Arps, Slate, Meagher & Flom’s Chicago offices who represents Citigroup, believes that his client prevailed mainly because employees provided “written consent” to joining the program. The company believes that the program has successfully fostered loyalty within its ranks, Kipp said. “Citigroup offers this investment program nationwide,” Kipp said. “It doesn’t want to have to suspend it in any one state.” A voluntary agreement The Illinois Appellate Court’s 1st District agreed with the plaintiffs that the stock counted as compensation under the Illinois Wage Act, but sided with the defendants in ruling that the employees’ voluntary agreement to the stock plan bound them to its terms, including forfeiture of stock not vested on departure. The program allowed employees to receive up to 25% of their pay in restricted Citigroup stock, at a 25% discount to market value. The employees also received certain tax benefits by enrolling in the program. The stock was required to vest over two years regardless of how many years the employee had worked for the company. Therefore, an employee with 25 years service might still lose compensation provided through the program if he or she quit the company less than two years after exiting the program. Alon Kim, the representative plaintiff in the case, was a financial consultant at Salomon Smith Barney, a unit of Citigroup, in its Chicago office, from 1993 to 2000. Kim lost $20,000 in the plan when he left Salomon Smith Barney, the lawsuit said. “The problem is most people don’t anticipate a job change two years in advance,” Nelson said. The plaintiffs argued that the Illinois Wage Act expressly prohibits this type of program, which requires an employee to agree to a forfeit compensation. Nelson emphasized that wages were not deducted and put toward the stock purchases, but rather that the employees were paid in stock if they agreed to the program. The plaintiffs argued that the forfeiture provision was not enforceable under the wage act, and that the program generally ran counter to the public policy of the state, Nelson said. The court disagreed: “We conclude that the voluntary forfeiture of earned compensation by an employee does not violate the public policy of the state and that the trial court erred in so holding,” wrote Judge Leslie Elaine South in the Sept. 29 ruling. Citigroup argued that the Illinois Wage Act didn’t apply to the case. Kip told the court that the employees joined the program knowing they would benefit from acquiring discounted stock and from tax benefits. “These are financial consultants and they make their living giving financial advice,” Kipp said. “They [entered the program] because they thought it had real advantages.”

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