Lazada employees question non-compete clause, clawback of shares after layoffs

SINGAPORE: When Timothy joined Lazada, he accepted a substantial pay cut because the e-commerce giant offered him a staggering six-figure sum in restricted stock units. 

A restricted stock unit (RSU) is an award of shares that comes with conditions, usually a vesting period, before they are transferred to the employee. 

In Timothy’s case, the stocks – worth more than one year's salary – were due to vest over four years. 

After working for Lazada for some years, a portion of the shares he was promised had vested. Timothy, who holds a managerial role, was expecting to receive a bigger bonus and more Lazada share options in April. After all, he had performed well this year.

But when he returned to work in January after the holidays, he and about 100 of his colleagues were told that they had been made redundant. His last day would be on Jan 15.

“How they’re conducting this exercise is quite disappointing. I don’t think they’re treating these employees in a tactful way,” he said. 

Those who were retrenched were offered two weeks of severance pay for every year they worked for the company, Lazada employees said. Those who spoke to CNA agreed to do so on the condition of anonymity and their names have been changed for this story. 

The sudden layoffs left employees crying and baffled, staff members told CNA earlier. 

After news of the retrenchment broke, the Food Drinks and Allied Workers Union said it was disappointed at not being consulted before Lazada laid people off.

It wrote to the company stating that the move was "unacceptable", and escalated the matter to the Manpower Ministry. The union also said it was negotiating with Lazada for better retrenchment benefits for laid-off workers. 

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 LLP.

“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.”

ENFORCING NON-COMPETE CLAUSES

Non-compete clauses that apply after an employee is terminated are enforceable in Singapore only if the scope is reasonable and they protect a “legitimate proprietary interest” of the employer, said Invictus Law's Mr Tan. 

For example, a non-compete clause would likely be held unreasonable and therefore unenforceable if it prevents the employee from working in the same industry entirely, has no fixed duration of operation or has no geographical limits. 

If the clause is unenforceable, then Lazada may not be entitled to forfeit vested shares from employees, said Mr Tan. 

“It would be unfair to enforce strictly such a clause, especially in a retrenchment situation. An argument can be made that since the company has declared the employee redundant, it should not be preventing that employee from seeking employment elsewhere,” said Mr Chooi.

Employees can try to negotiate this as part of their exit terms, he added. 

HR expert Ian Liew said other terms of the Lazada layoffs are also outside of the norm. For example, the typical notice period for retrenchment is one to three months, depending on the industry and role. 

“Having such an extensive list of non-compete is not very fair,” he said, adding that many companies in the e-commerce space could qualify as competitors.

“They did a termination for redundancy, so they don’t even have an opportunity to look for a job, then you limit their options too. So it’s extremely unfair and I find it very unethical.” 

With multiple rounds of layoffs leading up to this retrenchment exercise, employees were probably already worried about their jobs, said Mr Liew, an HR manager with more than 10 years of experience. 

“I don’t think they were properly prepared for this … The script given doesn’t seem to be addressing a lot of issues and it seems to be very vague on the reasons for the layoffs.” 

Although it is legal to serve a short notice and compensate the employee in lieu of their notice period, it’s not ethical to do so, he said. 

“They really didn’t take the employees’ feelings to heart,” he added.