Leaving an AI Startup? What California Employees Should Know About Stock Options, RSUs & Equity
Working for an AI or technology startup can come with compensation that looks very different from a traditional salary package. Employees may receive stock options, restricted stock units (RSUs), bonuses, or other forms of equity compensation that could become valuable if the company grows, raises additional funding, is acquired, or goes public.
But what happens to that equity when you leave?
For California employees leaving an AI startup or technology company—whether voluntarily, after a layoff, or because of a termination—the answer can depend on the type of equity you received, how much has vested, your equity plan and award agreements, the reason your employment ended, and any applicable exercise deadlines.
Understanding those terms before you resign or sign a severance agreement can be particularly important when a meaningful portion of your compensation is tied to company equity.
What Happens to Your Stock Options When You Leave a Startup?
Stock options generally give an employee the right to purchase shares of company stock at a predetermined exercise price.
If you leave the company, one of the first distinctions to understand is the difference between vested and unvested options.
Unvested options are often forfeited when employment ends, depending on the governing plan and award agreement. Vested options may remain exercisable for a period after termination, but the length of that period varies. Publicly filed equity agreements illustrate how significantly termination provisions can differ among companies.
That means employees should not assume that their stock options will remain available indefinitely simply because they have already vested.
How Long Do You Have to Exercise Stock Options After Leaving?
This is one of the most important questions for employees leaving a startup.
You may have heard of a 90-day post-termination exercise period, but employees should not assume that 90 days applies to every stock option.
Your actual deadline can depend on:
Your stock option agreement
The company's equity incentive plan
Whether you resigned or were terminated
Whether the termination was for cause
The type of stock option
Any special terms in an employment or severance agreement
Some plans provide approximately three months to exercise vested options after employment ends, while others provide longer or different periods under certain circumstances.
There is also a separate federal tax issue involving incentive stock options (ISOs). IRS rules generally require the employee to satisfy specific employment requirements through the period ending three months before exercising an ISO in order to retain statutory-option treatment, with different rules in certain circumstances such as disability.
Because the contractual exercise deadline and the tax treatment of an option are separate issues, employees with significant equity may want both legal and tax advice before making a decision.
What Happens to Unvested Stock Options If You Quit?
In many equity plans, unvested options stop vesting and are forfeited when employment ends.
For example, some publicly filed option agreements expressly provide that the unvested portion of an option terminates automatically upon termination of service.
But the specific language of your documents matters.
An employment agreement, severance agreement, acquisition agreement, or other arrangement may provide different treatment, including accelerated or continued vesting in certain circumstances.
This is one reason employees should review their documents rather than relying solely on what appears in an equity-management portal.
What Happens to RSUs When You Leave an AI or Tech Company?
RSUs are different from stock options.
Instead of giving you the right to purchase shares at an exercise price, an RSU generally represents a contractual right to receive shares or their value once specified vesting and settlement conditions are satisfied.
Many RSU agreements require continued employment through a vesting date. If employment ends before that date, unvested RSUs may be forfeited.
But again, there is no universal rule.
Some plans provide different treatment following death, disability, retirement, a layoff, an involuntary termination, or a change in control. SEC-filed equity agreements show examples ranging from complete forfeiture of unvested RSUs to prorated or accelerated vesting in specified termination situations.
For an employee with a large upcoming vest, the difference can be substantial.
What If You Are Fired Right Before Your Stock or RSUs Vest?
This is where the employment-law issues can become more complicated.
Being terminated shortly before an equity vesting date does not automatically mean the termination was unlawful or that an employee is entitled to the unvested equity.
However, the circumstances surrounding the termination may warrant closer examination.
For example, questions may arise about:
The employer's stated reason for the termination
Whether the employee had recently engaged in legally protected activity
Whether the termination violated an employment agreement
How the equity plan defines termination, cause, or continued service
Whether the employer followed the applicable plan documents
Whether a severance agreement changes the treatment of equity
Whether other compensation is also being withheld
If substantial equity is scheduled to vest shortly after termination, employees may want their employment and equity documents reviewed promptly.
Does It Matter If You Were Fired "For Cause"?
It can matter significantly.
Some equity plans treat a termination for cause differently from a resignation, layoff, or termination without cause.
Depending on the agreement, a for-cause termination can affect unvested awards and, in some plans, even the employee's ability to exercise vested options after termination. SEC-filed plans provide examples in which vested options remain exercisable after certain terminations but are immediately forfeited following a termination for cause.
Employees should therefore review exactly how "Cause" is defined in their employment and equity agreements.
The company's characterization of a termination can have financial consequences beyond the loss of the employee's salary.
What If Your AI Startup Is Acquired?
Acquisitions and other change-of-control events can create another layer of complexity.
An equity plan or award agreement may explain whether outstanding awards are assumed by the acquiring company, converted into different equity, cashed out, accelerated, or otherwise treated following the transaction.
Some plans also contain "double-trigger" provisions under which additional vesting occurs when a change in control is followed by a qualifying termination within a specified period. Other plans provide different treatment.
If you are leaving during or shortly after an acquisition, reviewing the change-in-control provisions in your documents can be particularly important.
Can You Leave an AI Company to Work for a Competitor?
California generally has strong restrictions on contractual provisions that prevent someone from engaging in a lawful profession, trade, or business, subject to statutory exceptions.
For an AI employee moving between competing companies, however, noncompete restrictions are only one part of the issue.
Employees may also have obligations involving:
Confidential information
Trade secrets
Intellectual property
Proprietary research
Source code
Customer information
Invention-assignment agreements
Nondisclosure agreements
This distinction can be especially important in artificial intelligence, where employees may have worked with proprietary models, datasets, training methods, software, research, or other commercially sensitive information.
Employees considering a move to another AI company should understand their contractual obligations before taking company information or materials with them.
What About Signing Bonuses, Retention Bonuses and Other Repayment Agreements?
Highly compensated technology employees may receive compensation beyond salary and equity, including signing bonuses, relocation assistance, retention payments, or other incentives.
California law regarding certain employment-related repayment obligations changed beginning January 1, 2026. Employees leaving a company should therefore not automatically assume that every provision requiring repayment of compensation is enforceable exactly as written.
The analysis can depend on the type of payment, when the agreement was entered into, and how the repayment provision is structured.
For employees with substantial compensation at stake, these provisions may warrant legal review before signing a separation agreement or making a repayment.
What Documents Should You Review Before Leaving an AI Startup?
Before resigning—or as soon as possible after learning that you are being terminated—locate the documents governing your compensation and employment.
Important documents may include your offer letter, employment agreement, equity incentive plan, individual stock option or RSU award agreements, vesting schedules, amendments, bonus or commission agreements, confidentiality and intellectual-property agreements, and any severance or separation agreement.
You should also confirm your equity records and understand important dates, including the termination date, upcoming vesting dates, option expiration dates, and any post-termination exercise deadline.
Should You Sign a Severance Agreement Before Reviewing Your Equity?
Employees receiving severance packages should understand how the agreement affects all forms of compensation, not just severance pay.
Depending on the circumstances, a severance agreement may address stock options, RSUs, bonuses, commissions, releases of claims, confidentiality obligations, and other rights.
An employee with potentially valuable equity should understand what is being retained, forfeited, accelerated, modified, or released before signing.
This can be especially important for founders, executives, engineers, researchers, product leaders, sales leaders, and other highly compensated employees whose equity may represent a significant portion of their overall compensation.
Leaving an AI or Technology Company in California?
California's technology industry is constantly changing, and the rapid growth of artificial intelligence companies has created compensation packages that can be increasingly complex.
When employment ends, a dispute may involve far more than a final paycheck.
Stock options, RSUs, bonuses, severance, commissions, confidentiality obligations, intellectual property agreements, and the circumstances surrounding a termination can all become relevant.
Employees should avoid assuming that what happened to a coworker's equity—or what happened at a previous company—will necessarily apply to them. The specific plan, award agreement, employment documents, and circumstances of the employee's departure matter.
Speak With Haulk & Herrera LLP
Haulk & Herrera LLP represents employees throughout California in employment matters involving compensation, termination, severance, retaliation, discrimination, and other workplace disputes.
If you are leaving an AI startup or technology company and have questions about your employment agreement, equity compensation, severance package, or termination, an attorney can help you understand how your employment documents and California law may apply to your situation.
Contact Haulk & Herrera LLP to discuss your circumstances and learn more about your rights as a California employee.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal, tax, or financial advice. Equity compensation, including stock options and RSUs, can be governed by individual employment agreements, equity plans, award agreements, tax laws, and other factors. Laws and regulations are also subject to change. Reading this article or contacting Haulk & Herrera LLP through this website does not create an attorney-client relationship. Consult with appropriate legal and tax professionals regarding your specific circumstances.
