Equity Clawback Trap? Vested Stock Confiscated (2026)

TL;DR:

• The Trap: "Forfeiture-for-Competition" lets companies claw back vested stock if you join a competitor.
• The Fix: Negotiate the clause out before signing, or get written confirmation your new employer isn't a "competitor."

"Vested" Does Not Mean "Yours."

I reviewed an offer letter for a VP of Engineering last week. It included a standard $500k RSU package. But on page 14, buried in the "Incentive Plan" (a separate PDF), I found the "Golden Clawback."

It read:

"If the Participant accepts employment with a Competitor within 12 months of termination, all Vested and Unvested equity shall be forfeited to the Company."

The candidate said: "That's illegal! Non-competes are banned!" I had to tell him the bad news. Non-competes are banned. They can't stop you from taking the job. But thanks to a 2025 Delaware Supreme Court ruling (LKQ Corp v. Rutledge), they can keep your money.

This is the "Forfeiture-for-Competition" (FFC) trap. Companies have realized they can't use "Golden Handcuffs" anymore, so they are using a "Golden Gun." Here is how they plan to steal your exit.

The Delaware Loophole

Most tech companies are incorporated in Delaware. Delaware law used to hate non-competes. But in 2025, the courts decided that "Employee Choice" matters. The logic:

• "We aren't stopping you from working for Google. You have a choice."
• "You can work for Google and lose your stock."
• "Or you can not work for Google and keep your stock."

Because you technically have a "choice," it is not a "Restraint of Trade." It is legal extortion. And it is standard in 90% of new executive contracts.

The "Call Option" at $0.01

How do they actually take the stock back? If you have Stock Options: They simply cancel them. The portal shows "Void." If you have Already Exercised Shares (you own the actual stock): The contract gives the company a "Call Option" to buy them back at the lower of:

1. Fair Market Value.
2. The original price you paid (often $0.01).

The Scenario: You exercised your options 3 years ago. You paid $5,000. The stock is now worth $2 Million. You quit to join a competitor. The company sends you a check for $5,000 and seizes your $2M in shares. You just paid a $1,995,000 "Tax" for changing jobs.

The "Competitor" Definition Creep

Who is a "Competitor"? In the old days, it was a list of 5 companies. In 2025, the definition is broad: "Any company that derives >10% of revenue from software, AI, or data services."

That covers everyone.

• Leaving Uber to join Airbnb? Competitor.
• Leaving a bank to join a crypto startup? Competitor. They intentionally make the definition vague so they can threaten anyone who leaves with total forfeiture. It forces you to ask for "permission" to quit.

The Real Numbers: The Cost of Quitting

I modeled the exit cost for a Senior Director under the new FFC rules.

The Verdict: If you have significant vested equity, you are effectively trapped unless your new employer is willing to pay a "Make Whole" Signing Bonus to cover the loss. (Spoiler: They usually aren't).

Frequently Asked Questions (That You Must Ask Before Signing)

Can I negotiate this out?

Yes. But you have to do it before you sign the offer. Ask to modify the "Bad Leaver" definition. The Ask: "I request that 'Voluntary Resignation to a Competitor' be removed from the Forfeiture conditions. Forfeiture should only apply to 'Termination for Cause' (Fraud/Crime)." If they refuse, you know they plan to use it.

What if I already signed it?

You are in a bind. The Play: You need a "Sign-off." Before you accept the new job, email your current HR: "I am considering a role at [Company X]. Can you confirm in writing that this does not constitute a 'Competitor' under my equity agreement?" If they say yes, save that email. It is your only defense.

Does this apply to public companies (Amazon/Google)?

Generally No. Public companies usually consider RSUs "earned wages." This tactic is used primarily by Private, Venture-Backed Startups (Series B to Pre-IPO) who want to stop you from leaving before the Exit.

Leon Consulting connects candidates with Executive Compensation Attorneys who can redline these contracts. Do not let a PDF steal your retirement. Get a contract review.

Other Corporate Traps to Avoid

Equity clawbacks are just one way companies exploit employees. Here are more:

HR & Compensation Scams

• Unlimited PTO scam: $0 payout when laid off—companies save millions
• The Work Number trap: Equifax exposes your salary to 11,000+ companies

Career Exit Traps

• Constructive dismissal: Forced to quit? How to prove it and get severance

Related Reading

• Startup Equity Scam — Paper money vs real money
• Stock Options Tax Trap — The IRS bill
• The Loyalty Tax — Why switching pays
• Contract-to-Hire Scam — Another compensation trap