A layoff notice hits fast and hard. Most people focus on the severance package, but the equity section is where real surprises tend to happen. And equity decisions come with a hard deadline. Here’s what happens to your stock options and Restricted Stock Units (RSUs) when you are laid off, and what you need to do before the window closes.
What Happens to Stock Options and RSUs During a Layoff?
During a layoff, your unvested equity is typically forfeited, though you can attempt to negotiate accelerated vesting or a pushed termination date. For vested equity:
- Vested RSUs: You retain ownership, but private company shares usually require an IPO or acquisition before you materialize value.
- Vested Stock Options: You generally have 90 days from your official termination date to exercise options before they are forfeited or converted to NSOs.
- Taxes and ESPP: Exercising ISOs can trigger an Alternative Minimum Tax (AMT) bill on unrealized gains, while ESPP contributions stop immediately and unused funds are typically refunded in cash.
Your Unvested Shares Will Likely Be Forfeited
This is the part that hurts most. Unvested RSUs and stock options usually disappear the date your termination is official. There’s usually no grace period and no requirement for your employer to accelerate them.
If you were close to a cliff vest or an upcoming vest date, check whether your termination date is before or after it. Even a few days can mean the difference between keeping or losing a meaningful chunk of shares.
Keep this in your pocket as a negotiation tool, however. I’ve seen some employees succeed at negotiating an accelerated vesting. Find out how many unvested shares you would forfeit, what they’re currently worth and make a specific request: partial acceleration or full acceleration. In some cases, you might want to ask to push your termination date by a few days to capture an upcoming vest. Ask your HR directly before you sign your severance agreement. The worst they can say is no, and most employees never ask.
You Keep Vested RSUs, but Check the Mechanics
If you have vested RSUs from a public company, the shares are already shown in your account, and you fully own them.
If your vested shares are still sitting in your equity plan account, you will typically need to transfer them to a personal brokerage account within a specific window. Missing this step doesn’t mean that you lose the shares, but some plans have specific rules on how long the shares can stay in a terminated employee’s account. Contact your plan administrator directly (Carta, Fidelity and E-Trade are the most common) to understand how long you have and what are your options as the rules vary by plan. Also, regardless of their rules, these are shares with real values that you want to keep track of and have a plan for.
If you’re working at a private company, you’re likely subject to double vesting. That means two things must happen before you fully own the shares: 1) the shares need to vest, and 2) an IPO or acquisition must happen before they materialize. In this case, you might unfortunately walk out with nothing, even if you have vested shares, but the company hasn’t undergone an IPO or acquisition.
Now, I’ve seen cases where a company allows you to keep your vested shares with a set expiration date. If no IPO or acquisition happens before that date, your agreement expires and your employer keeps the shares. But if if the company has an IPO or acquisition before the expiration date, you will keep your shares even if you no longer work for the company. It doesn’t happen often, but I have seen it before. So be sure to read your agreement carefully!
The Clock Is Ticking on Vested Stock Options
The ticking clock is the piece that catches most people off guard. When you’re laid off, most equity plans give you 90 days to exercise any vested stock options before you forfeit them. Once this window closes, your opportunity to acquire the stock is gone.
As a reminder, when you’re given stock options, you need to exercise them to own them. Vesting simply gives you the right to buy the shares, but you have to exercise that right. Companies will usually give employees 90 days to exercise that right after they’re laid off. If they don’t take action, that right expires.
If your options are Incentive Stock Options (ISOs), that 90-day window is an IRS rule, so there’s nothing you can negotiate here. Exercise ISOs after 90 days from termination, and they automatically convert to Non-Qualified Stock Options (NSOs), which are taxed less favorably. The tax treatment difference can be significant, so make your plan and decision carefully.
If your options are NSOs, missing the window means forfeiture rather than conversion.
Watch Out for the AMT Tax Bill
If you’ve been offered stock options, you’ve likely heard about the AMT. The Alternative Minimum Tax (or AMT) is, simply put, a parallel tax system that the IRS uses to make sure certain high earners don’t use too many deductions to reduce their tax bill significantly. If you’re subject to it, you pay whichever amount is higher, your regular tax or the AMT. Today, most people don’t usually have to deal with the AMT, but recipients of stock options often do.
If you’re receiving stock options, the AMT is based on the spread (meaning, the difference) between your strike price (the price your company is offering you to buy) and the current value of the stock, even if you don’t sell a single share.
This hits people in layoffs particularly hard because you’re trying to make a difficult decision under pressure. Before you exercise, run the numbers with a tax or equity compensation expert, so you’re not surprised with an unexpected tax bill.
Some private companies offer extended exercise windows for laid-off employees. Ask whether yours does because, if so, it materially changes how urgently you need to decide.
Here’s a simple example: Say your strike price is $10 per share, and the current fair market value is $30 per share. You have 10,000 vested ISOs you want to exercise before your 90-day window closes.
The spread is $20 per share ($30 - $10), and you’re exercising 10,000 shares. The IRS sees $200,000 of AMT income, even though you haven’t sold a single share and haven’t received any cash.
Depending on your other income and deductions that year, you could owe a significant AMT bill, potentially tens of thousands of dollars, on money you don’t yet have in your pocket. That’s the trap.
ESPP Shares
If your company offers an Employee Stock Purchase Plan, your contributions stop the day you’re terminated. Any payroll deductions already withheld since the last purchase date are typically refunded to you in cash, so you won’t get to buy at the discounted price mid-cycle. Some companies will do a final purchase with your accumulated contributions at termination, so it’s worth checking your plan document.
Any shares that you’ve already purchased through the ESPP are yours to keep.
What to Do in the First Few Days
You don’t have to figure all of this out today, but you do need to start gathering the right information immediately.
- Pull your equity plan document. This is different from your grant summary or your offer letter. Ask HR or your stock plan administrator for it, and ask for the written version, not a verbal summary.
- Identify your exact termination date. This is likely in your separation agreement. Confirm that HR and the equity plan administrator are aligned on that date because your exercise window starts from it.
- List every grant you hold, what type it is (ISO, NSO, RSU), how many shares are vested and what the strike price is for any options.
- Find out how long you have to exercise and whether any extended windows apply to your situation.
- Talk to a tax advisor before you exercise anything, especially if you're holding ISOs with a meaningful spread.
One more thing: if you’re negotiating your severance package, equity is a legitimate point of negotiation. Accelerated vesting, extended exercise windows and vesting credit for a transition period have all been negotiated into layoff packages before. It’s far easier to raise that conversation before you sign than after.
Getting laid off is disorienting, and the equity piece adds complexity at exactly the moment you have the least bandwidth for it. But this is also one of the few parts of a layoff where you have more power than you think: power to negotiate, to time decisions carefully and to protect what you have earned. The window is short. Use it.
