Shopify slashed its workforce by 20 percent last month as it sold Shopify Logistics to San Francisco-based supply chain management company Flexport. In a memo published on the company’s website on May 4, Shopify CEO Tobias Lütke said the layoffs had to be done to “pay unshared attention to [Shopify’s] mission.” Employees who were impacted by the recent layoffs have now slapped a $130 million class action lawsuit against the company.
“There are a number of consequences to this, and I don’t want to bury the lede: after today, Shopify will be smaller by about 20 percent, and Flexport will buy Shopify Logistics; this means some of you will leave Shopify today. I recognize the crushing impact this decision has on some of you and did not make this decision lightly,” wrote Lutke.
We’ve seen anywhere from a $10,000 to $50,000 and $60,000 difference between what individuals accepted and what Shopify now says they’re not going to get. We are not talking about anything minor here.
Lior Samfiru, Lawyer
What Was Promised?
Four months severance pay along with a week for each year contributed to Shopify was offered to employees. However, Shopify is now facing allegations that the company tried to slash its severance pay after the agreement was signed. The suit alleges that even after employees accepted the severance offers by Shopify, several were told that they actually owed much less severance package. Breaching the terms of the contract, Shopify denied abiding by the original severance package, claims a class action lawsuit.
“The individuals did the reasonable thing, which is to accept, only to be told even though we made you reasonable offers, even though you accepted that reasonable offer, we’re just not going to do it and you have to sign a brand new agreement for a much lesser amount. It just doesn’t work like that. I review severance packages every day and have 21 years of doing this and I have never seen any employer ever do anything like that,” Lior Samfiru, the lawyer pursuing the case told CityNews Ottawa.
Allegations
Iian Russel, the lead plaintiff in the class action lawsuit worked at Shopify for seven years. Impacted by the mass layoff, Russel was offered more than $88,000 in the first severance package which he accepted. Allegedly Shopify later offered a $44,000 deal, which if he doesn’t accept, he was told he would get around $36,000.
Samfiru alleged workers were sent a “vague statement about miscalculating” while being offered the revised severance pay. “For many people…the difference is significant,” Samfiru said.
“We’ve seen anywhere from a $10,000 to $50,000 and $60,000 difference between what individuals accepted and what Shopify now says they’re not going to get. We are not talking about anything minor here,” he added.
“Shopify made severance offers to these employees, threatened them with a short and arbitrary acceptance deadline, and when the employees accepted the offers, they were advised that they had no choice but to accept a significantly lower amount,” Samfiru wrote in his legal website. “It appears that Shopify took deliberate action to minimize its financial liability, resulting in considerable losses for potentially thousands of people,” he further states.
Shopify’s Response
So far, Shopify has not responded to the allegations. According to financialpost.com, the lawsuit is seeking $80 million in damages and $50 million in punitive, aggravated and exemplary damages. The amounts might change based on how many workers were offered deduction in severance pay, Samfiru said.
The first stage in this class action lawsuit will be to bring together terminated employees with similar concerns. Then the court has to agree that the individuals can be grouped together to address their issues. Any terminated Shopify employee whose severance pay was slashed would “automatically qualify as part of the class action lawsuit,” stated the official website of Samfiru Tumarkin LLP.
Why did Shopify Sack Employees?
“For the past year we’ve been subtracting everything that’s in the way of making the best possible product. This is extremely important, because we are heading into a decade of high velocity and massive change. We will require speed, agility, and a great deal of innovation,” said Lutke in the press release announcing the layoffs.
Lutke expressed gratitude to the managers and crafters of his company. He called Shopify a “crafter-centric vocational company”. Shopify tracks management and crafters separately. It aims to strike a balance between the number of crafters and managers. This quite explains the termination.
“Too few and you risk misalignment on the most important things, too many and you add heavy layers of process, approvals, meetings and… side quests. Our numbers were unhealthy, just like it is in much of the tech industry. One of the insidious consequences of this is that it leads to the company increasingly celebrating activities rather than crafter driven outcomes. With the right numbers we’ll fully focus on outcomes and impact,” Lutke said.
ALSO READ: Why Shopify Left Its Logistics Business Midway
According to the press release, besides severance pay, other benefits that were offered included medical and employee assistance program (EAP) during the 16 weeks period. The company also offered outplacement services and office furniture. “We legally need the work laptop back, but we’ll help pay for a new one to replace it. You’ll have continued free access to the advanced Shopify plan should you opt to take an entrepreneurial path in future,” stated the press release.
Other Such Cases
Across the tech sector, several companies are facing lawsuits because of the way they allegedly handled layoffs.
Twitter is facing similar allegations. More than 1,300 individual arbitration cases have been filed against the company for breaching the severance-pay agreement. The terminated employees, who were laid off soon after Elon Musk took over in October claimed that they were assured more compensation than the final offer that was made in January. Twitter could face upward of $130 million in legal costs to settle the case, as per Business Insider.
