I got a call last Tuesday from a VP of Engineering. Let's call him Marcus.
Marcus did everything right. He ground out four years at a Series C fintech. He hit his cliff. He vested his shares. He paid the tax bill. When he finally quit to join a competitor, he thought he was walking away with a $400,000 nest egg.
Two weeks later, a courier dropped a letter on his porch.
It wasn't a lawsuit. It was a demand letter. Citing a "Forfeiture-for-Competition" clause buried on page 14 of his grant agreement, his old company demanded he either quit his new job or wire them the cash value of his stock. All of it.
He thought "vested" meant owned.
In 2026, that is a dangerous lie.
Look, I've spent 20 years dissecting executive compensation packages. I've seen dirty tricks, but what's happening right now with the "Cantor Loophole" is the most aggressive wealth transfer from employees to founders I have ever seen.
Companies are using a legal technicality to bypass non-compete bans. They aren't stopping you from working. They are just making it too expensive for you to leave.
In this article, I'm going to break down exactly how this clause works, why the courts are letting it happen, and the specific "California Shield" strategy we used to save Marcus's money. (More on that in a minute).
What is the "Equity Clawback Risk"?
Let's cut the legal jargon.
A "Forfeiture-for-Competition" clause is not a non-compete. A non-compete says "You cannot work here." A forfeiture clause says "You can work anywhere you want, but if you compete with us, we take your money back."
Courts love this distinction. They call it "Employee Choice."
Here is the logic: You have a choice. You can keep your stock and stay on the couch. Or you can take the new job and lose the stock. Since you have a choice, it's not a "restraint of trade."
It's a leverage play.
It effectively functions as a non-compete for anyone who isn't independently wealthy. If your equity is worth $500k and your new salary is $200k, you literally cannot afford to take the job. The company knows this.
They are betting on your fear.
The Legal Shift: Why This Is Happening Now (2024-2026)
This wasn't always legal. For years, we assumed these clauses were unenforceable, especially in worker-friendly states.
Then came Cantor Fitzgerald v. Ainslie (2024).
The Delaware Supreme Court-which governs 90% of the startups you work for-ruled that these forfeiture clauses are valid. They decided that sophisticated parties (that's you, apparently) should be held to their contracts.
Then it got worse.
In 2025, LKQ Corp v. Rutledge confirmed this doesn't just apply to partners or C-suite executives. It applies to regular employees with RSUs and options.
The blast radius just hit everyone.
And here is the thing about Delaware law: it is obsessed with "contractual freedom." It assumes you read every line of that 40-page DocuSign envelope you opened on your iPhone while walking the dog. (I personally hate DocuSign for this exact reason; it gamifies signing your life away).
If your company is incorporated in Delaware, they are coming for your stock.
The "California Shield": Are You Safe on the West Coast?
This is the section that saves you money. Pay attention.
Last year, a Director of Product came to us with this exact problem. She lived in San Francisco. Her company was in Delaware. The contract said "Governed by Delaware Law." She thought she was cooked.
She wasn't.
We used California Labor Code Section 925.
If you live and work in California, there is a shield. Labor Code 925 prohibits employers from forcing you to litigate in another state or under another state's laws if the contract was signed after January 1, 2017.
The "Trojan Horse" Strategy
Companies try to sneak Delaware law past you. They bank on you not knowing your rights. But unless you were "individually represented by legal counsel" during the negotiation of the agreement, that choice-of-law provision is voidable.
Here is the play we ran for the client:
- We ignored the Delaware threats.
- We filed a declaratory judgment in California Superior Court.
- We cited Business & Professions Code 16600, which bans non-competes (and forfeiture penalties).
Result: The company folded in 48 hours. They knew they would lose in a California court.
The Catch: If you hired a fancy lawyer to negotiate your offer letter, you might have screwed yourself. Under NuVasive v. Miles, if you had counsel, you might be exempt from Section 925 protection. You waived your shield by being too prepared. Irony is a cruel mistress.
The "Tax Nightmare": Losing Stock You Already Paid Taxes On
Nobody talks about this. Not the blogs. Not the HR reps.
Let's say you vested $100,000 of RSUs last year. You paid roughly $40,000 in income tax at vesting. You have $60,000 in stock left.
This year, you quit. The company claws back the full $100,000 value.
You are now out the $40,000 cash you paid to the IRS.
The company gets their stock back. The IRS keeps your money. You are in the hole. It is a double whammy of epic proportions.
This is especially dangerous for startup employees navigating AMT tax, where paper gains can trigger massive tax bills even if the stock is clawed back later.
Do not just accept this loss.
You need to look at IRC Section 1341.
This is known as the "Claim of Right" doctrine. It allows taxpayers to claim a deduction or credit when they are forced to repay income they previously reported and paid tax on.
Sticky Moment: If you are forced to repay more than $3,000 in previously taxed income, Section 1341 lets you recalculate your taxes as if you never received that money in the first place.
Don't use TurboTax for this. Get a CPA who understands "repayments under claim of right." If you don't file this specifically, that money is gone.
Strategic Survival Guide: How to Protect Yourself
In my 15 years dealing with employment contracts, I have learned that "fairness" is not a legal argument. Leverage is.
Here is how you survive the risk.
1. Before You Sign (The Offer Stage)
Do not just look for salary and equity numbers. Ctrl+F the document for these words:
- "Clawback"
- "Repayment"
- "Forfeiture"
- "Covenant not to compete"
If you see them, and you are in a remote role, ask for a "California Choice of Law" clause. If they refuse, you know exactly what kind of game they are playing.
2. Before You Quit (The Departure Stage)
Never resign without a strategy.
The "Good Leaver" Negotiation Most companies want a clean break. They want you to sign a release of claims so you don't sue them for age discrimination or harassment. (If they are making your life miserable to force you out, read our guide on Constructive Dismissal first).
Use that.
Tell them: "I will sign the full release of claims, but only if you mutually agree to waive the forfeiture clause in my grant agreement."
(Pro Tip: Use these salary negotiation scripts to help frame this conversation professionally.)
Trade your silence for your stock. It works more often than you think.
3. The "Wait it Out"
Check the duration. These penalties usually expire 12 months after termination. Can you take a sabbatical? Can you consult for a non-competing industry for a year?
I had a client who spent a year building a house instead of working. He kept $2M in stock. The house cost $500k. He profited $1.5M by doing nothing.
Conclusion: Don't Be "Cantor-ed"
The rules of the game changed in 2026. "Vested" is just a word on a screen until you have the cash in your bank account.
If you are holding significant equity and planning a move, do not guess. If your contract has a "Call Option" or "Forfeiture" clause, you are walking into a minefield.
Get a contract review. Find the leverage. Keep what you earned.
Complete Financial Survival Guide
Equity clawbacks are just one of 7 major financial traps hitting tech professionals. Read the complete Tech Professional's Financial Survival Guide 2026 covering:
- ISO/AMT tax bombs
- 1099-K tax confusion
- Unlimited PTO traps
- Credit report errors
- LLC compliance deadlines