Published: | Last reviewed: December 2026 by Jeff Judge, CFP®
Part of our guide: What happens to my stock options when I leave my job?
Yes. An equity clawback provision can let a former employer reclaim vested shares, or the gains you made selling them, if you trip a trigger written into your plan. Vesting ends the waiting period, but it does not always end the company's claim. The most common triggers are a for-cause termination, a financial restatement, and a post-employment breach of a non-compete or non-solicit.
Key Takeaways
- Vested is not unconditional: plan and grant agreements can attach forfeiture or repayment terms that survive vesting, and sometimes survive a sale.
- Under SEC Rule 10D-1, listed companies must recover erroneously awarded executive incentive pay from the three completed fiscal years before a restatement.
- Maryland voids non-competes for workers earning 150% of the state minimum wage or less, but that relief depends on your pay and your plan's wording.
- Repaying equity income you were already taxed on brings partial relief, and the IRS draws its line at $3,000.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate equity compensation and job changes since earning his CFP® certification in 2013, by using Chesapeake's signature process, the R.U.D.D.E.R. Method™. "Most people read their forfeiture language for the first time the week a competing offer arrives, and by then the clock is already running."
What is an equity clawback provision?
An equity clawback provision is a contract term that lets a company recover equity, or the dollar value of equity, it already delivered to you. It lives in your equity plan, grant agreements, or a separate restrictive covenant agreement, and the wording varies widely.
A client of mine left a growth-stage software company last spring holding roughly $400,000 of vested stock and a signed offer from a competitor. He assumed salary was the hard negotiation. Then a letter arrived from his old employer's counsel citing a plan section he had not opened.
| Trigger | What it looks like | Why it surprises people |
|---|---|---|
| For-cause termination | "Cause" defined broadly, such as policy violations | The definition is wider than expected |
| Restrictive covenant breach | Joining a competitor or soliciting former coworkers | Ordinary career moves can qualify |
| Financial restatement | Recovery of incentive pay based on later-corrected numbers | It can reach people who did nothing wrong |
| Misconduct found later | Issues discovered after you left on good terms | Resigning does not stop the clock |
Does vesting shield my shares from a clawback? No. Vesting means you met the condition for ownership, but the same plan can attach separate conditions to keeping what vested. Read the forfeiture, recoupment, and restrictive covenant sections, not just the vesting scheduleThe timeline over which you earn the right to employer contributions, stock options, or restricted shares. If you leave before fully vesting, you forfeit unvested amounts — making the vesting schedule a critical factor to understand before changing jobs..
The restatement bucket is more formal than most people expect. SEC Rule 10D-1 directs exchanges to require listed companies to adopt a written policy for recovering erroneously awarded incentive compensation from current and former executive officers. It covers the three completed fiscal years before a restatement and is filed as an exhibit to the annual report.
The first bucket gets the attention. The second does the damage. A for-cause firing is rare, but a non-solicit violation can be as simple as referring a former teammate to your new company, which some plans call a forfeiture event.
I am not a lawyer, and this is general education, not legal guidance. Enforceability varies by state and wording, and "it probably would not hold up" is a theory you test only after hiring a litigator.
How does a forfeiture-for-competition clause work?
A forfeiture-for-competition clause does not stop you from joining a competitor. It makes the move expensive: if you compete within a set period, equity that vested during a lookback window is forfeited, or you owe back the gain.
Picture someone who vested $150,000 of RSUs in their final year, sold half, held the rest, and joined a direct competitor four months later. With a twelve-month lookback, the company may claim the remaining shares plus the gain on the ones sold. Because the IRS describes RSU value as ordinary income when units vest, they already paid tax on the full amount, so the worst case is owing money back on taxed income with only partial relief.
"In my experience, if you can't name the forfeiture triggers in your equity plan, you don't fully know what you own, and a competing offer is a costly moment to find out." – Jeff Judge, CFP®
My client's dispute settled, mostly because his new role arguably sat outside the clause. "Arguably" still cost him four months of stress and a five-figure legal bill.
Why do tech employees miss clawback risk?
Tech employees miss clawback risk because the documents holding it are long, signed early, and rarely explained by anyone with a reason to explain them.
The engineers and product leaders I work with read documentation for a living, yet few have read their equity plan start to finish. It is written for lawyers, and you sign it excited about the grant, not thinking about leaving. HR administers the plan; it does not flag provisions that may cost you later.
Refresh grants add a wrinkle. Jeff Judge has seen clients whose hire grant carried a narrow non-solicit while a refresh grant accepted three years later added a forfeiture-for-competition clause with a longer lookback. Same person, same job, two sets of exit math, and the stakes grow quietly as the stock price climbs.
Does selling the shares first help? Not necessarily. Many clauses reach the gain as well as the shares, so turning stock into a bank balance can feel safer without changing your exposure. If a forfeiture-for-competition clause applies, the timing and nature of your next job matter far more than the timing of your sale.
Does Maryland law limit non-competes and equity forfeiture?
Maryland law limits some non-competes, but it does not automatically shield equity you could lose under a forfeiture clause. Under Maryland Labor and Employment Article section 3-716, a non-compete covering an employee earning 150% of the state minimum wage or less "shall be null and void as being against the public policy of the State." With the state minimum wage at $15 per hour, that threshold works out to $22.50 an hour. It also voids non-competes for licensed direct-care health workers earning $350,000 or less, and for veterinary practitioners and technicians.
Most people holding meaningful vested equity earn well above those lines, so the statute often will not rescue them. Whether it reaches a forfeiture clause inside an equity plan is a question for a Maryland employment attorney, and plans name a governing state that can matter more than where you live.
Clients here in Harford County and the Baltimore metro area work for defense and cyber contractors near Aberdeen Proving Ground, software firms along the Baltimore and Columbia corridor, and remote-first companies based elsewhere. That last group deserves extra attention, since their plan may follow another state's law.
What should you check before accepting a competitor's offer?
Before you accept, find every forfeiture trigger, restriction period, and lookback window in your equity documents, then price that exposure into the new offer. Here is the order I follow:
- Pull every document. The equity plan, each grant agreement, any restrictive covenant agreement, your offer letter, and the company's clawback policy if it is public.
- Find the triggers and windows. Write down what triggers forfeiture or repayment, how long the restriction lasts, and how far back the lookback reaches.
- Map the overlap with your next move. Put the new job description beside the plan's definition of competitive activity.
- Price the risk before you sign. Real forfeiture exposure belongs in the negotiation. A sign-on bonus or make-whole grant is common for exactly this reason.
- Get an employment attorney to read it. An hour or two of their time is modest insurance when six figures of equity are at stake. They tell you whether the clause is enforceable. I tell you what the number is and how it fits your plan.
For the wider picture, see what happens to your stock options when you leave a job, our job change equity strategy, and whether to leave before your equity vests.
Clawback exposure belongs on your balance sheet even if you are staying. One client holds $500,000 of company stock, with about $180,000 vested in the last twelve months under a twelve-month competition lookback. If she stays, none of that matters. If she leaves for a competitor, that $180,000 sits in a gray zone until the window closes. I do not count it as fully liquid, and I do not want a down payment decision resting on it.
The R.U.D.D.E.R. Method™ is Chesapeake Financial Planners' six-step planning process: Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine. Mapping your triggers is a Review and Recognize task, and it belongs alongside the rest of your equity compensation planning.
Talk to a CPA before any repayment, not after. The IRS notes in Publication 525 that when a repayment exceeds $3,000, you may be able to deduct it or take a credit, depending on how and when you repay.
Not knowing your triggers is the normal state of affairs, even with seven-figure equity positions, and it is fixable in an afternoon. Look for sections titled something like "Forfeiture," "Recoupment," or "Restrictive Covenants," and write down what you find. If a strong competing offer landed next month, would you know what saying yes could cost you?
Frequently Asked Questions
Can a company take back vested RSUs after I quit?
Yes, in some situations, depending on your plan's wording. Many plans attach forfeiture or repayment terms after vesting, tied to a for-cause termination, a covenant breach, a restatement, or later-found misconduct. Read your plan and grant agreements before you resign, and ask an employment attorney whether the language is enforceable.
What is a clawback policy under SEC Rule 10D-1?
It is a written policy listed companies must adopt for recovering erroneously awarded incentive compensation from current and former executive officers after an accounting restatement. It looks back across the three completed fiscal years before the restatement, and the company files it as an exhibit to its annual report.
Does a non-solicit clause really put equity at risk?
Yes, it can. Some plans treat a breach of a non-solicit of employees or customers as a forfeiture event, so a casual referral of a former teammate could trigger it. Compare the plan's definition of prohibited activity with what your new role will involve.
Do I owe taxes again if I repay clawed-back equity?
Repaying does not erase tax you already paid, and the relief is partial and fact-specific. RSU income is taxed as ordinary income at vest, and for repayments above $3,000 the IRS describes a possible deduction or credit. Talk to a CPA before you repay anything.
Should I talk to a lawyer or a financial planner first?
Start with both, because they answer different questions. An employment attorney can tell you whether a clause is enforceable. A financial planner can quantify how much of your equity is exposed and how to price that risk into a new offer.
Ready to put numbers around your equity exit?
If your plan has forfeiture language and you are weighing an offer, Jeff Judge and the Chesapeake team serve families and business owners across Harford County and the Baltimore metro area, and we can help you size up what an equity clawback provision could cost before you sign. Schedule a free fit call at chesapeakefp.com.
A version of this article was originally published on Jeff Judge's LinkedIn.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
This information is not intended to be a substitute for specific individualized tax, investment or legal advice. We suggest that you discuss your specific situation with a qualified tax, legal or financial advisor.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
Chesapeake Financial Planners | 2402 Scotlon Ct, Forest Hill, MD 21050 | (410) 652-7868 | www.chesapeakefp.com
© 2026 Chesapeake Financial Planners | Not to be reproduced in whole or in part. All rights reserved.
