Aug 2, 2022 - Economy & Business

BuzzFeed goes to court against ex-employees

Illustration of a gavel casting a shadow on the Buzzfeed logo.
Illustration: Allie Carl/Axios

BuzzFeed and more than 90 of its former employees remain locked in a legal fight over the company's public listing last December, during which the ex-employees claim to have been improperly prevented from selling their shares.

Why it matters: The two sides are currently bickering over venue, and the outcome could be consequential for other companies that go public via SPAC.

State of play: BuzzFeed lawyers last Tuesday argued in Delaware's Chancery Court that the case should be heard by Chancery, while lawyers for the ex-employees argued that it should be heard by an arbitrator.

  • At primary issue is whether the plaintiffs should be considered shareholders (as BuzzFeed believes) or as employees whose original agreements included arbitration language (as the plaintiffs believe).
  • BuzzFeed claims that it created a successor company by going public, thus the plaintiffs don't have binding arbitration agreements with the "current" company.
  • It's even gone so far as to note that those employment contracts were with "BuzzFeed Inc.," whereas the post-SPAC company is "BuzzFeed Media Enterprises Inc." (a distinction that only sometimes makes its way into BuzzFeed securities filings).
  • Plaintiffs, on the other hand, are particularly eager to hear the case heard by an arbitrator because it likely would be quicker and cheaper.

The big picture: Startup employees often take below-market salaries in exchange for equity, and understandably expect that language in those agreements remains in force — even if their employer changes its corporate charter via a SPAC merger.

  • BuzzFeed is basically saying "buyer beware." A company spokesperson declined comment.

The bottom line: None of this concerns the real crux of the ex-employees' case, about their inability to sell shares. That will get heard, no matter the venue.

  • But the outcome there will be specific to BuzzFeed. The ruling on last week's hearing could cause aftershocks in startup HR departments across the country.
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