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In the first episode of Silicon Valley's third season, Nucleus employees get fired due to an invalid contract. They all get settlements as they’re ushered out the door, and Big Head is offered a settlement package of $20 million.

Why did Hooli offer settlements like this? If their contract wasn't valid, doesn't it mean they could be fired with no repercussions for Hooli? What would have happened if they refused the settlement?

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This Reddit thread kind-of explains it:

At the end of season 2, a California tech company, Hooli, has about half of its contracts invalidated because they contained a non-compete cause.

In yesterday's premiere, the tech company was able to make a large amount of money by firing many of the employees with the invalidated contracts (under other pretenses) as they would not have to pay them severance packages or their vesting stock options. As such, the company is able to take back control of all these stock options upon the termination of these employees and make a decent profit.

They're paying off the employees to avoid them suing Hooli for getting terminated (I assume that the Hooli contracts are rather restrictive and that this works both ways), and it is actually a profitable move.

The thread does point out that this story-line is rather unrealistic, though, if not to say outright nonsense:

The judge's ruling would have been that the noncompete clause was too broad and could not be enforced, not that the entire contract was invalid as a result.

Also, it's quite far fetched that a tech giant would eagerly fire 1/3 of its engineers for this reason. Firstly, every tech company is eternally starving for engineers. Secondly, the vesting of options doesn't cost the company any money; the creation of the shares merely dilutes the value of existing shares, so there is a cost to shareholders but it's not going to reach even 5% of the current market cap. The company realizes no revenue or increased margin as a result of cancelling employee stock options.

It's one of those things where you just have to go with the show's logic, and not expect realism.

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  • "The judge's ruling would have been that the noncompete clause was too broad and could not be enforced, not that the entire contract was invalid as a result." - Didn't they make a point how the contract didn't have the usual clause of "if any part of this contract is invalidated, it doesn't invalidate the rest of the contract," and therefore the rest of the contract was invalidated? I thought that was part of the gag - it was something that every contract has so it was odd that they left it out. (Not that it was realistic, just that it was part of the joke.)
    – user1118321
    Commented Mar 31, 2018 at 1:37

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