(Bloomberg) -- When Juno began recruiting Uber drivers in New York City early last year, it gave them a choice: They could either take about $100 in cash or begin to accumulate stock. The equity, the company explained, would give drivers the chance to share in the wealth if the business was successful. Juno said it was setting aside half the company’s initial stock for its drivers.
For a fleeting moment, it seemed like the workers who took the stock were in line for a windfall. Gett Inc., a Tel Aviv-based ride-hailing company, said Wednesday it was buying Juno for $200 million. But drivers were soon informed by emails from Juno that the stock plan was void. They could instead receive cash payouts amounting to less than what they could make in a day of driving.
It’s a stunning reversal for Juno, whose strategy was based entirely on being the driver-friendly alternative to Uber Technologies Inc. and Lyft Inc. The company takes a lower commission than Uber or Lyft and often portrayed its plan to offer equity as part of a deeply held philosophy. “We defined our core values, and we said it’s all about respect, kindness, fairness and transparency,” Talmon Marco, the company’s co-founder and chief executive officer, said during an interview in October. “When we make a decision, we always try to say, ‘Hey, are we abiding by this sort of self-imposed constitution of values?’”
Marco didn’t respond to multiple interview requests this week. Gett referred questions to Juno, and a Juno spokeswoman declined to comment on the stock program, saying it was “complicated.” Bloomberg reported Thursday that Gett is looking to raise as much as $700 million from investors.
Analysts saw shared ownership as a potentially disruptive alternative to Uber’s model. The pitch also excited drivers. This February, a year after the company launched, over 12,000 drivers took at least one fare via Juno in New York, the company’s only market. By comparison, Lyft has nearly 17,000 drivers in New York, according to city data.
But there had long been unanswered questions about how Juno’s stock compensation would work, or even whether it was legal. Uber has said it considered distributing restricted stock units to drivers in the past but concluded that it couldn’t do so without running afoul of securities law. According to contracts Juno distributed to drivers, equity would be doled out in the form of restricted stock units, which means they’d be awarded at a later date if the person continued working for the company and met certain conditions. Shareholders would be responsible for any taxes that the Internal Revenue Service decided to levy on the stock. Drivers would get nothing if a government body decided the plan was illegal.
Steven Savader, a Queens resident who has been driving for Juno since it debuted in early 2016, said the shares were a big incentive for him to work with the company. Like many Uber drivers, he felt mistreated and was optimistic about an alternative that would treat him as a partner. “I wanted the shares because driverless cars are going to come someday, and all the drivers were hoping that if the company gets big, we’d get a piece of the action,” he said.
Early last year, Savader was confused about certain aspects of the stock offer and approached Juno to discuss his concerns. He said Marco invited him to Juno’s gleaming office near the site of the former World Trade Center for coffee and assured him that everything was aboveboard. Savader said the CEO was charming but gave an unsatisfactory response to his questions about how the stock plan worked. “His answer was a whole bunch of legal nonsense,” Savader said. Marco later followed up with an email he forwarded from the company’s lawyers.
Marco had taken several such meetings with drivers, he told Bloomberg last year. He acknowledged that there was a current of skepticism about the company’s intentions. “I want to choose my words very carefully on that one when it comes to shares. But I believe that over time, the drivers will get a better understanding and appreciation of their equity position in the company,” he said.
On Wednesday, Savader received an email from Juno estimating his cut of the deal at $107. “Basically, they did a bait and switch,” he said. “We all feel like we’ve been betrayed.” Savader now thinks drivers’ best option is to form a union or other organization that will give them more leverage with ride-hailing companies.
Bloomberg viewed several emails Juno sent to drivers, with cash payouts ranging from $100 for a part-time driver to $251 for someone who regularly spent more than 50 hours on the road per week over the last six months. Even if Juno had given $250 to every driver who was active as of February, that would amount to about 1.5 percent of the company’s valuation from the sale.
In the emails to drivers this week, Juno said it had been considering changes to the program anyway, following a discussion with the Securities and Exchange Commission. The SEC declined to comment. Gett told drivers it had no plans to offer equity as part of compensation but would provide cash incentives to those who drove more, without providing details. Uber and Lyft routinely offer cash bonuses for drivers when they initially sign on, refer other drivers or hit certain milestones.
Juno’s stock program was designed to get drivers to keep working for the company. They would earn more stock as they continued to use Juno, and their shares would vest only if they continued to drive regularly over a two and a half year period. Because Juno had only existed for a year, this meant that none of the drivers’ shares had vested.
Unvested stock units that disappear during acquisitions are an increasingly common problem for employees of private companies, said Mary Russell, an attorney who advises startup employees on equity compensation. In the past, nearly all stock compensation plans had clauses guaranteeing that unvested shares must be replaced either with equity in the acquiring company or with cash equal to their value in the acquisition. It seems mathematically impossible for this to be the case in the Juno deal, according to Russell. This means that Juno’s terms must have included a cancellation plan, which allow companies to simply void unvested stock. An increasing number of equity deals offered to startup employees include cancellation plans, Russell said.
Juno said it calculated the size of its payouts using an independent valuation of drivers’ restricted stock units. Based on the offers viewed by Bloomberg, the company valued each stock unit at 1.7 cents. Russell said Juno had a responsibility to set expectations about the stock’s value with shareholders. “It’s not fair if you don’t get what you thought you were going to get,” she said.
Ahmed Hashem, another Juno driver, said he knew he was at risk of being misled by the company. “When I signed up, I didn’t read anything because I needed the money. All the drivers are like this,” he said. Hashem said he also had an interaction with Marco last year, when he told the Juno CEO via Twitter that he felt Uber had abused him. Marco assured him Juno would be different, Hashem said. “They promised to be better than Uber and everyone else,” he said. “But they broke their promise.”