NON-COMPETE CLAUSES
Like other retrenched Lazada employees, Timothy would still be bound by the non-compete clause in his employment contract and RSU documents. The HR representatives framed the layoffs as a “mutual separation”, he said, adding that this was “very nasty”.
Most of Lazada’s main competitors like Sea, Grab, TikTok and Goto are on the non-compete list, which is to be expected, employees said. But the extensive list also covers retail firms like NTUC FairPrice, Giant and Amazon, as well as logistics companies like J&T, SF, Kerry and NinjaVan.
If employees violate the non-compete clause by joining one of the companies on the list, their vested shares can be cancelled by Lazada because they are held in a trust under the company. When staff members asked if Lazada could buy back the shares, they were told to wait for the company’s initial public offering.
Since Lazada is not yet profitable, employees with vested shares do not receive any dividends. The value of the shares has also dropped significantly from when he first joined, Timothy said.
“They don’t allow us to sell it back. That’s the thing, there’s no liquidity and in tax season, we still need to pay quite heavy taxes for these RSUs,” he said.
“The worst thing is that the RSUs are still held in the trust controlled by Lazada or Alibaba Group. And they still want to use it to threaten you not to join their competitors.”
Another former Lazada employee, Russell, who was retrenched mid last year, faced a similar situation. He was promoted in April 2023 and offered US$17,000 of RSUs that would vest over four years.
But he was laid off just weeks later in a similar way – HR informed him in a meeting that his team had been made redundant, and offered a retrenchment package.
“It’s really an insult. We work for them tirelessly, (doing) overtime for free because we believe in the company. But they let us go with such a lousy package,” Russell said.
In his case, his RSUs had yet to vest, so he did not feel threatened by the non-compete clause in his contract. But he has heard of other cases where former employees have had their RSUs clawed back because they went to work for a competitor.
CNA has contacted Lazada about the RSUs and non-compete clause for retrenched employees.
CLAWING BACK VESTED SHARES
Employment law and HR experts CNA spoke to said it is common for companies to spread the vesting of RSUs in multiple tranches over time, usually using it as an incentive for employees to stay.
Unvested RSUs are typically forfeited if the employee is terminated, regardless of the reason for termination, said Ms Amarjit Kaur, partner in litigation and arbitration at Withers KhattarWong.
“Certain companies may be prepared to allow for an accelerated vesting of such RSUs, but this is unusual as companies generally prefer not to set such precedents.”
For vested RSUs, the company is also under no obligation to buy back the shares if there was no prior contractual agreement to do so, said Mr Darren Tan, deputy managing director at Invictus Law.
Lazada choosing not to buy back the shares is not surprising, since the reason for layoffs is usually liquidity issues, said Mr Chooi Jing Yen, partner at Eugene Thuraisingam LLC.
“The company would not want to expend more cashflow than it has to. The employees would have to hold onto the shares and seek to cash out at a later date.”