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BEWARE: In Bankruptcy, “Equity Compensation” Treated As Equity, Not Compensation

In a January 25, 2018 decision, In re: Lehman Brothers, Inc., the Second Circuit of the United States Court of Appeals upheld a lower court decision that restricted stock unit (RSUs) claims filed by former Lehman Brothers employees were securities claims, not creditor claims – putting the compensation claims behind the claims of creditors.  The Second Circuit accepted the lower court analysis that the employees “had … a choice” regarding compensation terms, which in our experience is often not true.  In reliance on the notion of choice, the Second Circuit agreed that, “Because [the employees] assumed the risk and reward expectations of shareholder when they agreed to receive compensation in the form of RSUs, [their claims] must be subordinated.”

© 2020 SHERIN AND LODGEN LLPNational Law Review, Volume VIII, Number 43


About this Author

Brian J MacDonough, Employment Law, Sherin and Lodgen Law Firm

Brian J. MacDonough concentrates his practice in employment law and executive advocacy. He handles a wide range of matters, including contract negotiation and enforcement, discrimination, whistleblowing, wage and hour issues, and wrongful termination. In particular, Brian counsels and represents executives and professionals regarding sophisticated employment and compensation matters, including employment agreements, change of control agreements, equity and deferred compensation vehicles, non-competition and other restrictive covenants, severance /separation terms, and...