OpenAI's EVIL Legal Strategy For Ex-Employees EXPOSED (They Lied)

leaked documents from open AI now give us more information about this whole clawback of equity for departing employees from open AI is it legal is it moral I'm going to explain what they're doing to the best of my ability as well as give you my take on it because I've been on both sides of this equation I've been a Founder giving these types of documents and I've also been a startup employee receiving these types of documents so let's go through it all here we go so the article by Vox from Kelsey Piper released just yesterday leaked open aai documents reveal aggressive tactics toward former employees now just to take a step back what happened about a week or so ago it was revealed that open aai has a provision in their employment documents that basically say when an employee leaves they have to sign a very Ironclad NDA for them to essentially get their Equity that they've already earned and of course a lot of people had thoughts on that that didn't seem fair that they shouldn't claw back Equity just because somebody is not willing to sign in NDA and then Sam Alman released a tweet saying basically yes those Provisions were in the documents but we've actually never done that before and we're going to be removing them from the documents we're sorry so kind of a good response and I actually commented that is the right way to respond to any kind of controversy like that if you accept responsibility and make Corrections that's how you do it but now it turns out Vox got some leaked to documents that show oh actually no they have done this before and so let's go through this article together so on Friday Vox reported that employees at Tech Giant open AI who wanted to leave the company were confronted with expansive and highly restrictive exit documents so that's what we just talked about if they refused to sign in relatively short order they were reportedly threatened with the loss of their vested equity in the company a severe provision that's fairly uncommon in Silicon Valley so a couple terms here first what is vested equity and I'm going to preface with I'm not a lawyer and none of this is legal advice but this is my understanding from being in this industry for a long time when you join a company you basically get options to purchase shares of the company and it's an option the option gives you the ability to purchase the shares at a usually very low price much less than what the company is actually worth so that when you actually leave the company or you go to sell the shares you can purchase them for x and let's say sell them for 10x and that is really the biggest Financial benefit of joining an early stage highly risky startup company but what does vesting actually mean so typically when you work at a company they don't just give you all of these shares or options at day one they want to make sure that you're a good employee you're going to contribute and you're going to be a valuable member of the team totally understandable totally standard typically it's four-year vesting with a one-year Cliff which means during the first year if you are fired or you leave for any reason you get nothing after the first year you get the first 25% and then every usually month after that you get a portion of the remaining 75% up to that 4 years so just a little bit of terminology as we go through the rest of this document and again all of this is extremely standard in Silicon Valley so the article goes on to State the policy had the effect of forcing ex employees to choose between giving up what could be millions of dollars they had already earned or agreeing not to criticize the company with no end date now that is also from my experience quite common when you leave the company you have to sign an agreement saying I am not going to reveal secrets and I am not going to disparage the company and in exchange I get something on the way out typically it's Severance but I'm less clear on whether Visions around the already vested Equity can be at risk for not signing these documents and that part does sound less common although again I'm not familiar so after the article came out as I mentioned Sam Alman posted an apology here's what he said we have never clawed back anyone's vested Equity nor will we do that if people do not sign a separation agreement or don't agree to a non-disparagement agreement vested Equity is vested Equity full stop there was a provision about potential Equity cancellation in our previous exit docks although we never clawed anything back it should never have been something we had in any documents or communication this is on me and one of the few times I've been genuinely embarrassed running open AI did not know this was happening and I should have so he's basically saying it's on me I didn't know about it but that's also on me and that's a very honest and I think good way to handle the situation but as I mentioned leaked documents kind of contradict what he's saying the article goes on to say but there's a problem with those apologies from company leadership company documents obtained by Vox with signatures from Alman and Quan and Jason Quan is the chief strategy officer claim that the clawback provisions were something they hadn't known about a separation letter on the termination documents which you can read embedded below which is just basically a long legal document so I'm not going to get into that says in plain language if you have any vested units you are required to sign a release of claims agreement within 60 days in order to retain such units so that's really the problematic portion of the legal documents it's signed by Quan along with aiv of people Diane Yun and she recently left and the secret Ultra restrictive NDA signed for only the consideration of a vested Equity is signed by coo Brad light cap so we have a lot of information so far it doesn't really point to the fact that they knew every in and out or at least Sam Alman didn't know every In-N-Out of that document really these are extremely long documents that are typically standardized in an industry sometimes a company will change certain things but usually they're pretty standard and they are written by huge legal firms and I'm going to be completely honest here when I was starting my previous company I didn't actually know every single line of every single document that were in these legal documents there was just a lot of legal language very difficult to understand very difficult to imagine some of the edge cases where some of that legal language would come into play I tried my best to understand it but again I was doing a million things so I totally understand that Sam Alman may not have known that was in there it goes on to say that these clawback Provisions were actually quite severe meanwhile according to documents provided to Vox by ex employes the incorporation documents for the holding company that handles equity and open AI contains multiple passages with language that gives the company near arbitrary authority to claw back Equity from former employees or just as importantly block them from selling it now that's actually something that I'm not sure whether it's common or uncommon so I can't really comment on it now those incorporation documents that we just referenced were signed on April 10th 2023 by Sam Alman in his capacity as CEO of open Ai and I'm going to be honest again there have been documents that I've signed that I did not fully read every single provision in there okay that's just the way it was for me I suspect many other Founders have done the same thing whether it's right or wrong and it's probably wrong I should have read every single line and I should have taken the time to understand it but I didn't and I'm guessing a lot of other Founders didn't as well so Vox asked open AI if they could provide context on whether and how these Clauses made it into the incorporation documents without alman's knowledge and then they didn't really answer it directly we are sorry for the distress this has has caused great people who have worked hard for us we have been working to fix this as quickly as possible and we'll do better in the future very corporate not anything special so Vox goes on to talk about the high pressure tactics of open AI throughout the hundreds of pages of documents leaked to Vox a pattern emerges getting ex-employees to sign the ultra restrictive non-disparagement and non-disclosure agreement involved threatening to cancel their Equity but it also involved much more now now threatening to cancel Equity to sign a new document that they have to sign when somebody's leaving the company seems very abnormal to me that is not a standard typically what's standard is I'm going to give you Severance this is a new batch of severance usually cash or healthc care or something and in exchange for this new batch of compensation you will sign non-disparagement Clauses now that is very normal and an employee doesn't have to do it they don't have to take that cash and then they don't have to sign the NDA and that's fine but having your Equity cancelled because you didn't sign something new that is crazy to me and the termination documents expired after 7 days that meant that former employees had a weak to decide whether to accept open ai's muzzle or risk forfeiting what could be millions of dollars a tight timeline completely agreed 7 days is very tight now Sam Alman says they have never clawed back anything but let's keep reading so most ex employees folded under the pressure for those who persisted the company pulled out another tool in what one former employee called the legal retaliation toolbox he encountered on leaving the company when he declined to sign the first termination agreement sent to him and sought legal counsel the company changed tactics rather than saying they could cancel his Equity if he refused to sign the agreement they said he could be prevented from selling his Equity now there's two things going on here one it really seems like the HR department is the one who screwed up here I am sure that there is an extremely secretive culture at open Ai and that permeated to the HR team and the HR team are the goons who are executing that culture and they probably also knew that it wasn't legal to do which is why they switched tactics now the second tactic is we're not going to allow you to participate in selling your equity and they didn't have to do that by the way so although it's kind of a crappy move they didn't actually they being open AI didn't actually have to give that benefit to ex employees basically open AI can decide at any time to allow some kind of liquidation and purchase by them of former employees shares they don't have to actually do that but they do it as a way to give some liquidation to the people who have been there for a while and want to sell a little bit of their shares but they don't have to and they certainly don't have to do it for everybody but again not that I agree with that I'm just speaking legally my opinion is they don't really have to do that so the specific language is if you have any unvested units units shares and do not sign the exit documents including the general release as required by company policy it is important to understand that among other things you will not be eligible to participate in future tender events that is the ability for open AI to offer liquidation for shares or other liquidity opportunities that we may sponsor or facilitate as a private company in other words sign or give up the chance to sell your Equity that that I don't think is true they still own the equity and they still have the ability to sell the equity when it is legal to do so so if they have a public liquidity event going public or any other legal event in which somebody can sell their shares they can't prevent them from doing that now the tender events the tender offers that they can offer or not offer so let me just give a little bit of information about what a tender offer is why it's important and why startup employees work at startups when it's so risky in a a private company like open aai employees are still awarded ownership shares of the company or more frequently options to purchase ownership shares of the company at low prices which we discussed but have to wait until an opportunity to sell those shares which may not come for years and one thing they didn't say is or at all the company could fold it could never go public there's a lot of different ways unfortunately to screw early employees large private companies sometimes do tender offers where employees and former employees can sell their Equity open AI host tender offers sometimes but the exact details are a tightly kept secret now here is something that I find interesting and I can't imagine is legal in addition to Clauses stating that vested Equity will vanish if a former employee does not sign a general release within 60 days the incorporation documents also contain Clauses stating that at the sole and absolute discretion of the company any employee who is terminated by the company can have their vested Equity Holdings reduced to zero that can't be legal it just can't be there are also Clauses stating that the company has absolute discretion over which employees are allowed to participate in tender offers in which their Equity is sold this seems more legal to me but again I'm going to keep saying this I'm not a lawyer I don't know for sure now here's why I think everybody's more upset at open AI than they would be at most other companies when hearing this open aai has long positioned itself as a company that ought to be held to a higher standard it claimed that its unique corporate structure which involved a for-profit company governed by a nonprofit would let them bring transformative technology to the world and ensure it benefits all of humanity as the company mission statement reads and open AI senior leadership has talked at length about their responsibilities for accountability transparency and Democratic input with Alman himself telling Congress last year my worst fears are that we the field of the technology the industry caused significant harm to the world so openai is trying to make things right open aai told me the author of the article we are identifying and reaching out to former employees who signed a standard exit agreement to make it clear that open AI has not and will not cancel their vested equity and releases them from non-disparagement obligations the Fuller statement they're making updates to their departure process we have not and never will take away vested Equity even when people didn't sign the departure documents so even though something is in legal documents it's only there and it's up to the company really the executives to decide whether they want to use it or not it shouldn't be there to begin with if it's something egregious like that so if you want to read the full leaked documents they are on this Vox article and I'll drop the link to this article in the description below it's definitely a long legal document so it can be boring and hard to read at times but if you want to learn more about it please do read it and what do you think do you think Sam Alman knew do you think they would ever use it they hadn't they say they haven't used it at least and I don't know a lot of this stuff just happens in Silicon Valley the clawback of vested Equity is not usually a thing though if an employee has earned equity and they leave typically a company can offer to buy it from them but not claw it back because they didn't sign additional binding agreements that I have not heard of if you enjoyed this video please consider giving a like And subscribe and I'll see you in the next one

Channel: Matthew Berman

Views: 40,189

Keywords: openai, legal, chatgpt, llm, ai, legal drama, legal issues, sam altman, ilya sutskever

Id: 0VNWWk-_7f0

Length: 15min 20sec (920 seconds)

Published: Sun May 26 2024