I once heard some advice worth remembering from a lawyer: do not sign contracts on the basis of trust for the counter party, because they are your counter party today. For long-term contracts, when you actually have a dispute several years down the road, you may be dealing with a totally different set of actual people. People change jobs. Companies get bought. Cultures and personalities drift over time.
Your contract will not, ordinarily, adjust itself just because the guy who promised that Odious Clause X was boilerplate that would never be held against you has left the company and been replaced by Scrooge McStealYourEquity. Don't give Scrooge the opportunity. Get exactly what you expect to have happen to you written in the contract.
P.S. Relatedly, your discount rate is probably too low, and you probably overestimate your odds of a liquidity event and the upside potential. Your employers will act to encourage this. Get paid in cash as much as possible.
When you sign a contract, things are going right. You and the other party are friends, everyone loves each other, etc. The day you sign the contract, you don't need it. The temptation to not worry about it is huge.
But the day you need the contract, you'll wish you had worried about it.
I disagree. Contracts are there to make sure that minds meet in as clear a fashion as possible, hopefully preventing things from going wrong. Contracts are often totally inadequate when things do actually go wrong.
I think you're both right (parent + grandparent). Contracts are where both parties hammer out the exact nature of the relationship. Responsibilities, compensation, duties, etc. with the goal being everyone having a clear understanding of how things will work. That being said, when/if things go bad, the contract then becomes the document you use to guide the resolution if it relates to employment. For instance "my manager ordered me to work X hours of unpaid overtime or be fired when my contract says any overtime work means 1.5x base compensation." Silly example, but the contract gives the employee (or the employer if the employee does something incredibly stupid) some measure of legal protection and recourse including suing the other party.
In the instance of the Skype people, if they weren't given the MPA document and the clawback clause explicitly refers to policies in that document as the basis for clawback, then I think they have a case for fraud on the grounds of dishonesty (disclaimer: IANAL) and at a minimum have skype refund them all the taxes they paid (if any) on the stock options.
The problem with that theory, is that no employee below a senior CXO position will ever get an employee contract that provides them _any_ level of protection. If you can't trust your potential employer, that employee contract doesn't give you, or your so called equity, a spit of protection. In a Private Equity, you can, at the drop of a hat, be diluted to nothing. A new round of funding can come in at a 2X, 3X, or, in some vulture rounds, 5X liquidation preference - effectively wiping out any value your common has.
Employees get no almost no protection from their employee contracts - 99.9% of the signing employees didn't write them, the company's who are hiring them did. 99% of those employees don't negotiate terms to their benefit based on that contract. Other than the Founders and other groups with controlling shares, most of the common is worthless while the venture is private, subject only to the good graces and manners of Sr. Management.
So, respectfully, I'll have to disagree with patio11 - when signing an employee contract in the valley, it's all about trusting the founders, and controlling parties - your contract isn't going to do anything whatsoever for you should Scrooge McStealYourEquity take over.
I disagree - at the end of the day, it comes down to if I trust the people in charge (board/founders/investors) since there is basically nothing an employee at a startup can do to protect themselves from those people.
I could be diluted to practically nothing, there can be a 'sale' where only 'chosen' people make real cash via golden handcuffs/consulting agreements/signing bonuses, IP can be licensed into a new company, etc.
Depending on the details, some of those things might provide a cause of action for a civil suit but, in practice, I'm not going to get into a protracted court case over, at most, a few hundred thousand. It isn't enough money for a lawyer to take the case on contingency, and I wouldn't want to spend $(X)XX,000 out of pocket or gain a reputation for being litigious. (Of course, the calculus changes if the company is the next Google or FB - but 1000x+ returns are exceedingly rare).
I agree in principle, but the reality is that the majority shareholder in a private corporation, from what I understand, can nearly always screw minority shareholders.
My understanding is that nothing is stopping the majority shareholder from simply issuing more shares to themselves and diluting you out.
Your contract will not, ordinarily, adjust itself just because the guy who promised that Odious Clause X was boilerplate that would never be held against you has left the company and been replaced by Scrooge McStealYourEquity. Don't give Scrooge the opportunity. Get exactly what you expect to have happen to you written in the contract.
P.S. Relatedly, your discount rate is probably too low, and you probably overestimate your odds of a liquidity event and the upside potential. Your employers will act to encourage this. Get paid in cash as much as possible.