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. (Since TikTok owner ByteDance is not publicly traded, if employees want to cash in their stock shares, they most likely have to sell them back to the company.)
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 cochairs 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.”
TikTok went on to say that shareholders have some leeway to talk to authorities about confidential matters and trade secrets as part of ongoing investigations. But attorneys said it’s unclear whether that exception applies to filing complaints with the government.
Jason Navarino, a law partner in Riker Danzig’s tax and corporate groups, also questioned TikTok’s vague definition of disparagement by saying that it makes it difficult to know what the boundaries are. Furthermore, the legal landscape about non-disparagement clauses is evolving, he said. For example, last year, the National Labor Relations Board ruled that overly broad non-disparagement clauses are unlawful in severance agreements.
“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.
In his LinkedIn post, published on Feb. 21, Ryan wrote: “ByteDance’s non-disparagement clause is illegal…Anyone impacted or threatened by ByteDance with this clause should report the violation to the Department of Industrial Relations.”
The law in California, where TikTok and Ryan are based, says that non-disparagement clauses can’t stop employees from speaking out about retaliation, discrimination, harassment, and other unlawful acts at work.
Ryan and another ex-TikTok worker who owns shares, and who spoke to Fortune anonymously for fear of retribution by TikTok, said the non-disparagement clause wasn’t included in the shareholder agreements they signed. Only after employee shareholders threaten legal action or say they need to see the clause for their recordkeeping does the company reveal what’s in the clause, said the two former TikTok workers.
Ryan, who is now an attorney with his own tech law practice, hopes his complaint will attract the attention of California’s labor commissioner and trigger an investigation into TikTok, where he led parts of its security operations from March 2020 to June 2022.
This comes amid a rocky week for TikTok with a bipartisan House of Representatives’ Energy and Commerce Committee unanimously supporting a bill that would force ByteDance to sell TikTok within 165 days. Representatives also criticized the company for flooding their phone lines with calls from upset users who believed Congress was calling for a total ban, which House China Select Committee Chair Mike Gallagher (R-Wis.) told reporters is an “outright lie.”
TikTok shareholders received the latest buyback offer on March 4 and have until March 29 to tender their shares for sale. On March 5 and March 8, Ryan contacted the company by email about its failure to send him the offer, and has yet to receive any response.
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’s possible that Ryan didn’t receive the latest buyback offer due to a system glitch, administrative error, or a decision by the company that he is ineligible for reasons other than violating the non-disparagement clause. But Ryan is convinced otherwise, and said that if he does eventually receive the invitation after the delay, it will be because the company meant to intimidate and silence him.
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.
