Court: Microsoft Israel Fired Worker So He Wouldn't Get Stock Options

Rejected Microsoft's argument that there had been no stock options program, and he had poor human relations

A Tel Aviv labor court yesterday found for a former Microsoft Israel worker, who claimed that he'd been fired in bad faith, not for cause. One of the illegitimate reasons for his dismissal was to prevent him from exercising stock options he held in a company that Microsoft Israel had bought, he claimed. The court agreed.

Roni Gruschka had been a network systems engineering manager at the Israeli startup Peach Networks. His employment agreement there granted him options to buy 16,000 shares in Peach.

In March 2001, Microsoft Israel bought Peach and the startup's workers, including Gruschka, were hired by Microsoft Israel. The acquisition agreement stated that stock options given to Peach workers would be exchanged for stock options in the parent company Microsoft.

Come May, Gruschka contacted Microsoft to inquire when he could next exercise his converted options. The company replied that on November 22, 2001 he would be entitled to exercise half his options to buy Microsoft shares.

Three weeks later, he was fired by letter from former Peach CEO Ophir Paz, who blamed the dismissal on organizational changes at Microsoft Israel.

Gruschka continued to work at Microsoft Israel for 2.5 months after notice was given, finally leaving on July 31, 2001.

On September 30, 2001, Gruschka demanded that Microsoft allow him to exercise his converted stock options. It refused and he sued at the Tel Aviv Labor Tribunal.

Gruschka claimed, via attorney Shimon Lavie, that he had been fired in order to prevent him from exercising the options. He had been a key person at Peach, he claimed, and a partner in the process of the company's sale to Microsoft Israel. Upon termination of his job, he claimed, he remained entitled to exercise the options and buy 4,036 Microsoft shares, based on the principle of roll-over.

Microsoft Israel claimed that Peach had never formally approved the stock options program, and that from the day the Peach options were converted into Microsoft options, the Peach options ceased to exist. Also, it argued that Gruschka had been fired for professional reasons and problems with his human relation skills.

Judge Dina Efrati ruled in favor of Gruschka, refusing to accept that Peach had not had an options plan: clearly it had, and it gave Gruschka the option to buy 16,000 shares in Peach, which had been converted into an option to buy 4,036 shares in Microsoft, she ruled.

"If the stock options plan at Peach was never approved, it would impair the validity of the income tax permit to convert options that the company received, and also breaches the Income Tax Law. It also constitutes delivery of false information to the tax authorities," Efrati wrote.

She also noted that Gruschka's employment agreement stated his entitlement to exercise stock options.

"Meanwhile, Microsoft did not present any document or witness on its behalf to shed light on the events," she added.

The judge rejected Microsoft's version that Gruschka had been professionally inadequate, and pointed at letters praising his functioning. His dismissal had indeed been in bad faith, Efrati decided: it was not based on reorganization, management problems, or bad human relations, but had indeed been an attempt to prevent him from exercising his options.

She ruled that Gruschka would be entitled to exercise half his options, and slapped Microsoft Israel with court costs, and Gruschka's legal costs.