SEC Proposes Temporary Rules to Facilitate Participation by Certain “Platform Workers” in Compensatory Offerings Under Rule 701 and Form S-8
I really didn’t want to post another blog before Thanksgiving, but today the SEC voted 3-2 to propose rules that, on a temporary basis and subject to conditions, would permit a corporation provide equity compensation to certain “platform workers” who provide services available through the corporation’s technology-based platform or system. Readers may recall that the SEC published a concept release to solicit comment on whether and how best to modernize the exemption under Rule 701 and to update Form S-8 in July 2018.
The proposed rules would amend Rule 701 by adding a temporary rule provision that, for five years, would enable corporations to use Rule 701 to compensate certain platform workers. The proposed temporary rules focus on the new types of work relationships between companies and individuals that have emerged in the so-called “gig economy.” In the SEC’s view, these have arisen in large part due to the internet and typically have involved an individual’s use of a company’s internet “platform” to find a particular type of work, or “gig” (i.e., task or job), such as ride-sharing, food delivery, household repairs, dog-sitting, or tech support, or using the platform to sell goods or lease property to third parties.
A corporation would be able to use the Rule 701 exemption to offer and sell its securities on a compensatory basis to platform workers who, pursuant to a written contract or agreement, provide bona fide services by means of an internet-based platform or other widespread, technology-based marketplace platform or system provided by the corporation if:
the corporation operates and controls the platform;
the issuance of securities to participating platform workers is pursuant to a compensatory arrangement, evidenced by a written compensation plan, contract, or agreement;
no more than 15% of the value of compensation received from the corporation by a participating worker for services provided by means of the platform during a 12-month period, and no more than $75,000 of such compensation received from the corporation during a 36-month period, shall consist of securities, with such value determined at the time the securities are granted;
the amount and terms of any securities issued to a platform worker may not be subject to individual bargaining or the worker’s ability to elect between payment in securities or cash; and
the corporation must take reasonable steps to prohibit the transfer of the securities issued to a platform worker pursuant to this exemption, other than a transfer to the corporation or by operation of law.
The proposed amendments would also permit an Exchange Act reporting company to make registered securities offerings to its platform workers using Form S-8.
According to the SEC, it is proposing these amendments on a temporary basis to allow it to assess whether issuances of securities to platform workers under Rule 701 or Form S-8 are being made for legitimate compensatory purposes. The SEC would also be able to assess whether such issuances have the expected beneficial effects for corporations in the “gig economy” and their investors, including those platform workers who have received securities as compensation, and whether such issuances have resulted in any unintended consequences. In order to help in the evaluation of the proposed expanded scope of Rule 701 and Form S-8, the proposed amendments would require a corporation that sells securities to platform workers to furnish certain information to the SEC at six-month intervals.
The proposal will have a 60-day public comment period following its publication in the Federal Register.
-Mike Melbinger, CompensationStandards.com November 24, 2020
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