In short, yes, assuming this termination is made for good-faith reasons, such as business downsizing or poor work performance. Most employees are "at will," which means you are hired and fired at the company's discretion without a contract. An employer is free to terminate "at will" employees at any time. As reported by The Wall Street Journal and The Blog, instead of firing someone before vesting, the company can restructure the stock grant in a way that returns some unvested stock or options to the company for reuse in grants to others.

Some courts have implied covenants of good faith and fair dealing by employers when a bad-faith termination results in employees losing benefits almost earned by past services. Consider the case of Sellers v. Minerals Technologies Inc., Cetco Energy Services Company LLC (US Court of Appeals for the 5th Circuit, 2018), which involved an executive's cash-based long-term incentive compensation. The executive's employment agreement had a 30-day notice provision that, if applied, should have delayed the termination date until after vesting. The court ruled that when an executive is terminated without cause just before the vesting date, the employer "frustrates" vesting and thus the service-based condition is satisfied, according to a commentary on the case from Wagner Law Group.

Your stock plan and grant agreements, or perhaps any severance arrangement, may also cover this situation involving termination without cause. Failing in the courts are arguments that unvested options are protected by state laws that require all wages to be paid for work before employment termination. (See a decision made in 2010 by the Maryland Court of Appeals.)

In general, to avoid costly lawsuits, companies consider future vesting dates when terminating employees. They may delay the termination date, extend it by using "paid time off" days, or accelerate the upcoming vesting to avoid appearing to terminate an employee merely to forfeit soon-to-be vested shares.

Performance Shares

In Suzuki v. Abiomed Inc. (2017), a federal district court in Massachusetts allowed a lawsuit involving whether a covenant of good faith and fair dealing could be applied to potentially protect someone with unvested performance-based grants. In an appeal (Nov. 2019), the United States Court Of Appeals for the first Circuit held that, under Massachusetts law, a terminated employee asserting this claim must demonstrate that the lost compensation was "clearly" related to past services that were already performed. The implied covenant claim failed in this situation, where the terminated employee had made progress but had not fully achieved the milestone that would give him additional equity compensation.

The new decision is examined in an article from the law firm Seyfarth Shaw. The initial district court decision that allowed the case to proceed is discussed in a commentary from Sherin & Lodgen.

Another court case that addressed this issue is Coca-Cola Beverages Florida Holdings, LLC v. Reginald Goins (Del. Ch. 2019), which involved restricted units. A company can expect to face a conflict-of-interest suit, claiming bad faith, should it deny the payout of a performance-based stock award when it terminates an employee before the end of a performance-period cycle (see an article at the website Law360: Coke Florida Owner Can't Escape Chancery Stock Award Case).