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Imagine you are an executive for a biotech company making a comfortable $140,000 a year. A headhunter calls, spinning stories about a terrific opportunity in the San Francisco Bay Area. Signing on could land you the kind of lucrative stock options you’ve been reading about. So you give up your job, sell your condominium, move halfway across the country, and sign a lease for an apartment. And, lo and behold, the Sunday before your first day of work, you get the call. “Sorry,” says the chief executive officer who so enthusiastically hired you months before. “Turns out we don’t have funding for your position.” This is no hypothetical. It’s what happened to an executive who quickly became a client of Mark Rudy’s, a plaintiffs’ employment lawyer at San Francisco’s Rudy, Exelrod & Zieff. It’s also a scenario that’s being repeated in Silicon Valley and around the country, everywhere that crashing dot-coms are leaving tech workers angry — and ready to sue. “We’re seeing a lot more executives bringing fraudulent inducement cases,” says Fred Alvarez, head of the employment group at Wilson Sonsini Goodrich & Rosati, which knows a thing or two about representing high-tech startups. Jilted employees are just one type of dot-com complainant these days. Others are complaining because they were fired before a company went public. “They didn’t get rich, and all their friends did,” is how Alvarez characterizes it. Although in California, as in most states, employment is at-will, Alvarez sees employees arguing that it was fraudulent for employers to lure them with the promise of stock options and then fire them before the IPO. Still others are suing because the company’s promise of valuable stock options fell flat after the company’s plans for going public never took off. And below executive level, the word employers everywhere dread to hear is now being said loud and clear in the dot-com world: unions. Until last year’s Nasdaq free fall, soaring stock prices shielded many dot-coms from many of the usual employment problems. But with the market on the ropes, says Paul Salvatore of New York’s Proskauer Rose, tech companies’ “charmed existence is no longer keeping them out of the realities of the litigious American workplace.” (Perhaps not surprisingly, GCs at many dot-coms facing layoffs or labor troubles — including Amazon.com Inc., and DoubleClick Inc. — are loath to discuss these issues, and would not return calls.) Of course, part of the problem is that many executives jumped blindly into what was then the new new thing. “People were taking huge risks with their career with a 1-in-50 chance of being successful,” says Rudy, who claims he’s been flooded with calls from disgruntled employees since the market started going soft last spring. “Now, about 97 percent of dot-coms are failing,” but employee expectations haven’t quite caught up with this reality. “When you go from being a paper millionaire to being laid off, that’s quite shocking,” explains Salvatore. Because most new hires are either at-will employees or signed contracts that gave them no grounds to sue, says Rudy, 95 percent of the calls he gets don’t amount to anything. But some claims do lead to suits — or at least to threatening demand letters that can yield settlement agreements that are costly for companies. (Or, they yield nothing if the shop sinks completely.) Many executives who negotiated a just-cause provision into their employment contracts are now crying foul after being fired for poor performance. “A lot of people joined these companies, and the companies didn’t take off,” says Alvarez. “So shareholders complain, and senior executives are being blamed.” But it’s difficult to assess who’s to blame when a startup fails. “You see a lot of finger-pointing,” says Alvarez. Of course, high turnover in high tech is not new. This world quickly dispenses with the old and hires the latest to keep up with lightning-fast changes in technology. But when the economy was hot, laid-off employees quickly found new jobs. Most litigation then was over losing stock options, not over losing the job itself. Lawyers expect that that will change. “As soon as you see that old unemployment rate starting to sneak up, you’re going to see a lot of termination litigation,” says John Fox, head of the employment group at Fenwick & West. In San Francisco, says Rudy, “we’re starting to see the layoffs as they existed in the early nineties and mid-eighties.” Executives drowning in worthless stock options aren’t the only ones complaining. Grumbles are coming from those lower on the New Economy food chain as well. Armed with studies showing that members of Generation Y share a penchant for collective action, Proskauer’s Salvatore has been warning his management clients that these young twenty-something workers are far more open than their older counterparts to union drives. “When you combine that with the renewed vigor of the AFL-CIO and the new wave of union leadership, that’s a recipe for renewed unionization,” Salvatore says. At Amazon.com, a Seattle-based division of the Communications Workers of America began organizing about 400 customer service employees, responding in part to the company’s contracting out customer service work overseas. The United Food and Commercial Workers Union is trying to unionize another 6,000 workers at eight Amazon distribution centers from Washington to Georgia, and has already organized employees at several online grocery stores. And at San Francisco-based electronics retailer E-Town, about 35 workers filed a petition with the National Labor Relations Board to vote on whether to join the CWA. “There have been an enormous amount of issues facing workers that were masked by the high-flying stock issues,” says Marcus Courtney, cofounder and organizer of the Washington Alliance of Technology Workers, known as WashTech, the CWA affiliate trying to organize at Amazon.com. “Workers realize that, absent representation, they’re not going to have any voice over how they work in this industry. Once the stock market has tanked, they’ll realize that the honeymoon is over.” Labor organizing is “part of the maturation of the dot-com industry,” says Proskauer’s Salvatore. Management lawyers also expect a resurgence in employment discrimination claims — particularly age discrimination, as the number of layoffs of gray-haired workers by twenty-something managers escalates. All this spells tough times ahead for struggling dot-com companies and some sleepless nights for their in-house lawyers. But employment lawyers will surely reap the benefits. Says Wilson Sonsini’s Alvarez: “We’re busy as we can be.”
Current Issues Facing California Employment Attorneys. March 26-April 6.

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