In a recent ruling, the California Court of Appeal held that a voluntary incentive compensation plan that permits employees to purchase discount company stock with a portion of annual earnings, but requires forfeiture of the stock and the funds used to purchase it if the employee fails to remain with the company for a certain amount of time, does not violate the California Labor Code.
The plaintiff in Schachter v. Citigroup, Inc., 159 Cal. App. 4th 10 (2008) filed a class action suit, alleging that the forfeiture of money used to purchase stock was a violation of Labor Code sections 201 and 202; Labor Code section 203 requires an employer to pay its employee all earned but unpaid compensation at the time of discharge or resignation. The court held that employees electing to participate in the stock program were paid all wages, but voluntarily chose to use a portion of their wages to purchase stock at a discount. Because the employee resigned before the end of the two-year vesting period required by his employer, he never earned the restricted stock, and thus there was no unlawful forfeiture of unpaid wages.

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