The Perils of Revising Word Templates: An Example from a Recent Lawsuit

That one-man legal-research machine Steven Sholk informed me of the California Court of Appeal’s decision in Vespremi v. Tesla Motors, Inc. (go here for a PDF copy).

The part that caught Steven’s eye was the court’s discussion of the following provision in the employment agreement of one of the plaintiffs (the employment agreement of the other plaintiff contained the same language, but referred to 100,000 shares):

Subject to the approval of Tesla’s Board of Directors, you will be granted a stock option to purchase an aggregate of 40,000 shares of Tesla’s Common Stock pursuant to Tesla’s Equity Incentive Plan then in effect. Your stock options will vest commencing upon your first day of employment (1/4 of the shares vest one year after the Vesting Commencement Date, and 1/48th of the shares vest monthly thereafter over the next three years.)

Each plaintiff was terminated in his first year of employment. In their lawsuit against Tesla, the plaintiffs claimed, among other things, that they hadn’t been given the Tesla shares to which they were entitled.

The lower court found for Tesla, but the Court of Appeal disagreed, noting the conspicuous inconsistency in the quoted language: the first part of the second sentence says options vest starting the first day of employment, whereas the language in parentheses that follows says that vesting starts one year after the “Vesting Commencement Date.” (The Court of Appeal understood that defined term as meaning the first day of employment.)

Here’s what I think happened: In revising a template that provided that shares would vest beginning the first day of employment, Tesla added language but forgot to strike the original, inconsistent language.

And in the new language they used the defined term “Vesting Commencement Date” to convey its original meaning—the first day of employment—even though that defined term was entirely inconsistent with the revision.

So this part of the dispute would seem to represent the fruit of a botched bit of drafting. But this sort of glitch can be expected when you’re creating routine paperwork by revising Word documents. (A benefit of document assembly is that it precludes such mistakes.)

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.