Fired Right Before Your Options Vested? That Timing Might Be Illegal

An employee performs well for almost a full year. A vesting cliff worth real money is just weeks away. Then, suddenly, a termination. The timing alone doesn’t prove anything. But it’s exactly the kind of fact pattern courts have let juries examine closely.

What Is a Vesting Cliff?

Most startup equity, whether stock options or restricted stock units, vests over four years with a one-year “cliff”: nothing vests during that first year, then a large chunk, often 25%, vests all at once the moment you cross the one-year mark. If you are terminated the day before your cliff, you typically walk away with nothing.

The Legal Theory: Bad-Faith Termination

Most equity and token agreements are clear: unvested awards are forfeited if you’re no longer employed. Courts have generally upheld that rule. There’s an exception, though, called the implied covenant of good faith and fair dealing. In plain terms: even under a contract that technically lets an employer fire you anytime, the law won’t let them use that power specifically to cheat you out of something you’ve already earned. Timing a termination to prevent a vesting event, rather than for any real business reason, has been recognized as a breach of this principle.

Case to Know: Shah v. Skillz Inc.

The clearest recent illustration is Shah v. Skillz Inc., 101 Cal. App. 5th 285 (2024). Gautam Shah joined the mobile gaming company Skillz in 2015, accepting a lower salary in exchange for stock options. In 2018, Skillz terminated him “for cause,” which under his agreement voided his stock options immediately. Shah sued. He argued that there was no real cause and that the termination was designed to deny him the stock options. A jury agreed, awarding him more than $11.5 million.
The Court of Appeal upheld the core finding that Skillz breached its agreement, ultimately awarding Shah $6.7 million. It also held that damages for lost stock options don’t have to be valued at the moment of termination. They can be valued later, including after a company’s IPO, when the shares are actually worth something. That mattered here because Skillz went public in 2020, and Shah’s options became far more valuable than they would have been on the date he was fired. The court also ruled against Shah on a separate point, finding stock options aren’t “wages” under California law. That closed off his wrongful-termination and retaliation claims, and with them, punitive damages and attorney’s fees.

This Theory Has Real Limits

Bad-faith termination claims aren’t automatic winners. Courts have pushed back on stretching this legal theory too far. The Utah Supreme Court’s 2019 decision in Vander Veur v. Groove Entertainment, a sales-commission case, narrowed the implied covenant’s reach significantly, holding it can’t override the express terms of an at-will employment agreement, even where an employer’s timing looked suspicious.
In other words, these claims aren’t guaranteed. Shah shows they can work; Vander Veur shows they don’t always. The difference usually comes down to your state’s law, the specific language of your equity agreement, and how well the employer’s stated reason for the termination actually holds up.

What About Token Vesting?

There isn’t yet a well-known published court decision specifically addressing a termination timed around a crypto token vesting cliff. The underlying theory, breach of the implied covenant of good faith and fair dealing, should apply the same way it does to traditional equity: was the employer’s real motive to prevent an earned benefit from vesting? The evidence is what’s different. A public, timestamped token unlock calendar can make a termination’s timing far easier to prove than it would be with private stock options, where the vesting date is usually known only to the company and the employee.

What To Do If You Were Terminated Right Before a Vesting Date

  • Your vesting schedule, the exact date of your cliff or next tranche, and the exact date and stated reason for your termination all matter. Document the timeline precisely.
  • A thin, recently-invented, or inconsistently-applied justification for a “for cause” termination, as in Shah, is often the strongest evidence of bad faith. Look closely at the stated reason.
  • Winning on breach of contract doesn’t guarantee tort damages. Depending on your state, equity or tokens may not legally count as “wages,” which can limit which claims and remedies are available. See our Executive Employment Contracts overview for how equity provisions interact with the rest of your employment agreement.

Frequently Asked Questions

Usually, yes. Those provisions are generally enforceable. A different issue can arise when the termination itself was allegedly carried out specifically to prevent vesting.
Usually, yes, and that provision is generally enforceable. The exception is where the termination itself was carried out specifically to prevent vesting, rather than for a legitimate reason, which several courts have recognized as a separate bad-faith claim.
No. Timing alone is rarely enough; it’s evidence, not proof. Cases like Shah succeed when the timing is paired with a weak, inconsistent, or pretextual stated reason for the termination.
The underlying legal theory should apply the same way, though there isn’t yet a well-known published court decision addressing token vesting specifically. Courts will likely analogize to existing stock-option case law given the similar structure.

Bottom Line

Losing unvested equity or tokens when you leave a job is usually lawful. Losing them because your employer manufactured a reason to fire you right before they vested is a different story, and one that some courts have been willing to let juries sort out. The strength of that claim depends heavily on the specific facts, your state’s law, and how thin the employer’s stated justification really is.

Questions About Your Employment Rights?

Speak with Wilkenfeld Law Office about your situation and learn what options may be available.
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This post provides general information and is not legal advice. Contacting us does not create an attorney-client relationship. If you were terminated shortly before a vesting date and believe the timing wasn’t a coincidence, contact us for a free consultation.
Reviewed by Ari Wilkenfeld, Esq. (DC Bar No. 461063; MD Bar No. 9806240300) Ari has over 27 years of experience litigating in federal and state courts, and before the U.S. Equal Employment Opportunity Commission (EEOC), the U.S. Merit Systems Protection Board (MSPB), and various arbitration panels. Ari has been recognized by Esquire Magazine as “a famously determined Civil Rights lawyer” and by the New York Post as “a high powered DC Lawyer.” Last updated: August 30, 2026
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