Employee Stock Ownership Plans (ESOPs)

ESOPs can help employees share the gains from their hard work. But business owners don't always treat ESOPs fairly. Have you ever felt your ESOP was mismanaged or abused? Learn more about what an ESOP is and how it can go wrong.

What is an ESOP?

An ESOP is a type of retirement plan that invests in the stock of the company that created the plan. As an ESOP participant, you have an individual account that holds the company shares allocated to you during your employment. The benefit you can take with you is based on the value of those shares.

The vast majority of ESOPs are sponsored by privately held companies. That means there is no market price for the company’s shares tied to public trading. Instead, the ESOP relies on a small group of powerful people at the company (or their handpicked advisors) to decide what the shares are worth. There is no guarantee or insurance to protect the value of your account. Because of their unique structure, ESOPs are vulnerable to conflicts of interest, abuse, or even fraud.

When should I be concerned about my ESOP?

It can be hard to tell if your ESOP was abused or treated unfairly. Here are some red flags that might raise some concerns about potential abuse or fraud:

  • You were surprised the company was sold to an ESOP and not to another company. Did an acquisition fall through before the ESOP was created? If so, then the company may have been sold to an ESOP to get the prior owners more money than they deserved.

  • Your shares are not increasing in value as you would expect. You should get an account statement at least once a year letting you know the value of your ESOP account. Is the company growing faster than your ESOP account? If so, then the value of the company stock might be diverted elsewhere, or simply miscounted.

  • The ESOP is a poor fit for your industry. ESOPs are most beneficial for workers who stay a long time at the company. Is there high turnover at your employer or in your field? Are most workers part-time? If so, then it’s possible most workers will not be able to benefit from the value of the ESOP and the ESOP may be benefiting someone else.

  • Your ESOP has been terminated, and employee payouts are less than you’d expect. When ESOPs shut down, employees are often paid for their shares. Is your payout less than you’d expect based on what you’ve heard about the deal or prior valuations of the company? There are lots of ways for employees’ money to end up in others’ pockets. Pay special attention to the amount of your payout if company executives are part of the new ownership group.

Our Cases

80/20 ESOP

A360 ESOP

Del-Air ESOP

Advanced Diagnostic Group (ADG) ESOP

Russelectric ESOP

Electric Supply ESOP

Aluminum Precision Products (APP) ESOP

Wilson Electric Services ESOP

Aerotech, Inc. ESOP

Pride Mobility Products ESOP

How can I learn more?

If you believe your ESOP is not (or was not) managed fairly, contact us by filling out this form.

One of our experienced attorneys may reach out to you directly to learn more about your plan. It doesn’t cost anything to speak to one of our attorneys and you’re under no obligation to take legal action after talking to someone about your rights.