On Thursday, a former employee filed a complaint in the Southern District of New York against Goodness Growth Holdings, Inc. and Vireo Health, Inc., alleging it improperly and retroactively reclassified the plaintiff as an independent contractor.
According to the complaint, Goodness Growth Holdings, Inc. is a foreign corporation, formally known as Vireo Health International, Inc. and that Vireo Health, Inc. is a wholly-owned subsidiary of Goodness Growth Holdings, Inc. that is incorporated in Delaware. Additionally, the complaint states that the defendants own and operate a multi-state cannabis company that is licensed to grow, process and distribute cannabis in eight state markets for medical and recreational use.
The complaint states that the plaintiff is a former employee, officer and director of the defendants. The plaintiff purports that in November 2015, he was hired as the Chief Executive Officer of Vireo’s wholly-owned New York State subsidiary, Vireo Health of New York, LLC. The plaintiff further states that overtime he became involved in nearly every facet of the defendants’ business, including serving as Chief Operating Officer of the U.S. holding company, Vireo Health, Inc. and managing more than 400 employees across the country.
The complaint purports that in 2018, the defendants began reorganizing their corporation and subsidiaries in anticipation of becoming publicly traded in Canada, and as part of this restructuring, the plaintiff was granted stock options in the defendants’ companies in the form of an Incentive Stock Option Agreement. According to the complaint, incentive stock options (ISOs) receive the more favorable capital gains tax rather than ordinary income tax with non-statutory stock options (NSOs). However, for a stock option agreement to be treated as an ISO rather than a NSO, strict requirements must be met, for example ISOs can be granted only to employees and they must be exercised within three months following termination of employment.
The plaintiff alleges that in early 2020, the defendants began facing financial distress and as a result, in March 2020, the plaintiff and defendants agreed to a transition agreement in which the plaintiff would reduce his role in the defendants’ corporations and work as an independent contractor. However, the plaintiff argues that the provisions in the agreement regarding the plaintiff’s resignation as an officer and employee was illusory and the defendants continued to treat him as an employee by issuing a W-2, continuing to withhold payroll taxes on a biweekly basis, providing benefits including state family leave and disability insurance and allowing for ongoing stock option vesting.
Further, the complaint alleges that in December 2020, January 2021 and February 2021, the plaintiff exercised his stock options with the defendants treating them as ISOs rather than NSOs. However, on January 12, 2022, the defendants’ Chief Administrative Officer informed the plaintiff that Goodness Growth Holdings had retroactively determined that he was not an employee when he exercised his options in December 2020, January 2021 and February 2022, and they now considered his stock options as NSOs rather than ISOs. The plaintiff argues that because of this retroactive assertion, he was not an employee, and he now faces additional tax liability that he would not have incurred if the defendants had correctly treated him as an employee and his options as ISOs.
The plaintiff seeks declaratory judgment, damages attorney’s fees and costs for the defendants’ alleged negligent misrepresentation and breach of contract. The plaintiff is represented by Moskowitz & Book, LLP.
