Current and former TikTok employees who criticize the company risk losing any stock they own—in some cases worth millions of dollars—under a shareholder agreement that bans disparaging the social media service.
Like many tech companies, TikTok awards restricted stock units to its employees that vest over time as part of their compensation. The shares incentivize employees to work hard and stay with the company in the hopes of big paydays.
But TikTok is also using the stock compensation as a tool to tamp down dissent. Any current or former employees who own shares risk losing them by speaking out about a wide range of topics.
Five attorneys who practice shareholder law told Fortune that TikTok’s non-disparagement provision is unusual, but not illegal so long as it doesn’t prevent, intimidate, or punish employees for filing complaints with government agencies. For example, workers can’t be blocked from reporting dangerous working conditions or nefarious company practices to the Occupational Safety and Health Administration or the Securities and Exchange Commission.
“We see non-disparagement clauses in a variety of different contracts. It’s a little unusual that you would see it in a shareholder agreement, but it’s not out of the question,” says Joshua Hollingsworth, who is a partner at Barnes & Thornburg and co-chairs the firm’s entrepreneurial and emerging companies team.
TikTok’s shareholder contract, viewed by Fortune, says shareholders cannot “directly or indirectly make any critical, adverse or disparaging statement or comment about the Company or any of the Company’s subsidiaries, affiliates, directors, officers, or employees.” If shareholders are caught doing so, “all of the participant’s restricted share units will be immediately forfeited.”
“The question is: What’s disparagement? There’s a fine line between ‘you’re not going to say anything bad about the company,’ and prohibiting an employee from saying anything about the company,” Navarino said.
TikTok did not respond to Fortune’s multiple requests for comment about its non-disparagement clause or whether it has ever seized stock from any shareholders.
Patrick Spaulding Ryan, TikTok’s former lead technical program manager who owns tens of thousands of company shares, is putting TikTok’s non-disparagement clause to the test. On Wednesday, Ryan filed a complaint with California’s Department of Industrial Relations’ Retaliation Unit after TikTok failed to include him in its latest program to buy back shares from current and former employees at set prices. He accused the company, owned by China-based ByteDance, of leaving him out of the offer because he had criticized the disparagement clause in a post on LinkedIn. Being left out is costing him millions of dollars and qualifies as retaliation, he said in his complaint.
“The question is: What’s disparagement? There’s a fine line between ‘you’re not going to say anything bad about the company,’ and prohibiting an employee from saying anything about the company,” Navarino said.
id not TikTok drespond to Fortune’s multiple requests for comment about its non-disparagement clause or whether it has ever seized stock from any shareholders.
Patrick Spaulding Ryan, TikTok’s former lead technical program manager who owns tens of thousands of company shares, is putting TikTok’s non-disparagement clause to the test. On Wednesday, Ryan filed a complaint with California’s Department of Industrial Relations’ Retaliation Unit after TikTok failed to include him in its latest program to buy back shares from current and former employees at set prices. He accused the company, owned by China-based ByteDance, of leaving him out of the offer because he had criticized the disparagement clause in a post on LinkedIn. Being left out is costing him millions of dollars and qualifies as retaliation, he said in his complaint.
“The question is: What’s disparagement? There’s a fine line between ‘you’re not going to say anything bad about the company,’ and prohibiting an employee from saying anything about the company,” Navarino said.
In October, Ryan had communicated with the TikTok-ByteDance legal team to express his concerns about a related issue involving the company’s willingness to buy shares at a higher price from current employees than former ones. At the time, the company responded that the provision was included in the shareholder terms and conditions, to which Ryan had agreed, and that tendering his shares was voluntary.
Ryan is among several former TikTok employees who haven’t received the latest share buyback offer. He and the others are among the 300-plus people who communicate their grievances in a group chat for ex-TikTok workers. They say there is a correlation between the people who weren’t invited to sell their shares and those who’ve complained about TikTok.
Ryan said he is unaware of TikTok seizing shares from any current or former employees for violating the disparagement clause.
It could take months, even years, for California regulators to resolve Ryan’s complaint. But any ruling may have enormous implications for shareholder law. If regulators say TikTok did nothing wrong, other companies could add broad non-disparagement clauses to their employee shareholder agreements. If it rules in Ryan’s favor, TikTok and other companies may have to strike or revise the non-disparagement clauses, potentially opening the floodgates for employee complaints about protected topics.
Of course, the interpretation of what constitutes disparagement is ambiguous. Critics argue that the vague language employed in TikTok’s clause makes it challenging for employees to discern acceptable boundaries for criticism. In terms of legality, legal experts have stated that as long as it does not obstruct the filing of complaints with government agencies (or prevent or intimidate employees from doing so), then it may be legally sound.