Employee stock bonus, stock purchase, and stock option plans are extremely common. Most employees and prospective employees are undoubtedly happy to receive these types of equity compensation awards, but can an employer require an employee to invest in the employer's business. The California Labor Code provides:

Investments and the sale of stock or an interest in a business in connection with the securing of a position are illegal as against the public policy of the State and shall not be advertised or held out in any way as a part of the consideration for any employment.

Cal. Lab. Code § 407. This would seem to be a problem.

Fortunately, Section 408(c) of the Corporations Code provides:

Sections 406 and 407 of the Labor Code shall not apply to shares issued by any foreign or domestic corporation to the following persons:

(1) Any employee of the corporation or of any parent or subsidiary thereof, pursuant to a stock purchase plan or agreement or stock option plan or agreement provided for in subdivision (a).

(2) In any transaction in connection with securing employment, to a person who is or is about to become an officer of the corporation or of any parent or subsidiary thereof.

A similar provision was added in 2015 with respect to domestic and foreign limited liability companies. Cal. Corp. Code § 17704.01(e).

This does not mean that corporations and LLCs are out of the woods in every case in which it is alleged that the employee was forced to invest. In Hulse v. Neustar, Inc., 2019 WL 13102321 (S.D. Cal. Dec. 18, 2019), the court denied the defendant's motion for judgment on the pleadings because the plaintiff alleged that the defendant required the plaintiff to participate in an equity rollover that was separate and apart from the terms of the initial stock option plans pursuant to which the plaintiff acquired his equity.