The employees? offer letter provided them with a certain number of Name Intelligence corporate shares at the time of their hire. The employees were promised additional shares annually for each year they received an average or better performance rating.?? The number of shares would be based on the rating. ?Several years later the? founder ?of ?the? company decided ?to ?sell ?the company to Thought Convergence. ?As a condition of? sale, ?Name ?Intelligence? was ?required ?to ?buy back all of the outstanding stock rights.? ?The employees executed stock right cancellation agreements. ?The agreements provided payment for the stock would be in three increments by funds Thought Convergence would give to Name Intelligence. Name Intelligence made the first payment and counted it as W-2 income.? ?Before the payment was due, Thought Convergence sued Name Intelligence? to ?overturn ?or? reduce? the ?payments due to the employees.?? Name Intelligence did not make the second payment.?? The employees sued Name Intelligence for breach of contract in King County? Superior ?Court.?? ?Judge ?Carol ?Schapira ruled in favor of the employees. Name Intelligence later paid the employees some but not all of the third payment based on a settlement between it and Thought Convergence. Judge Schapira made a second ruling in favor of the employees on their breach of contract claim. The court later awarded double damages for the second payment and for some of the third payment under RCW 49.52.? Name Intelligence appealed. Division One ruled that the payments at issue were not wages within the meaning of RCW 49.52.?? It was not enough that the payments ?arose out of? the employment relationship.?? The payments at issue were in exchange for surrendering an ownership interest and were not provided in compensation for services rendered.
The appellate court did not decide whether the original ?stock ?grants ?were? wages.?? ?Assuming they were, all the stock promised was provided per the offer letter.? ?The only question was whether ?the ?consideration ?owing? to ?the employees under the stock repurchase agreement was itself wages.? ?It didn?t matter that Name Intelligence had treated the first payment as W-2 wages for tax purposes as legally they weren?t under Washington law.
Arzola v. Name Intelligence, Inc., — Wn. App. –,288 P.3d 1154 (11/26/12) (Div. I) (Appelwick, Becker, Dwyer).