How I sued Squarespace for my 401k match — and lost

Trading war stories is so important for regular employees, so here’s mine.

Last year I sued Squarespace, Inc. over my compensation — specifically, my 401k match — and I’m writing to share what the process was like, of seeking answers and of suing. In the end, this was a disagreement over terms, numbers, and documentation — details and fine print, in other words.

The suit was in September 2018 in New York City, where their office is, in small claims court.

Context: My Offer and Employment

I worked at Squarespace for about 8 months, from August 2016 through May 2017. I was a regular W-2 employee, and specifically I was a backend engineer. I quit at will for my own reasons.

My offered compensation took three forms. An “offer calculator” sheet sent by their recruiter broke down my “First Year Salary & Benefits” (numbers are rounded a little for simplicity):

Annual Salary $150,000
Sign-On Bonus $10,000
Annual 401K Match (4% Of Salary): $6,000

(I can’t quote the official, signed offer letter because it’s confidential, but its language on 401k matching was nonspecific.)

This break-down formed the heart of our disagreement. I thought that if I put a dollar into my 401k in 2016, then Squarespace would put in a dollar, up to a maximum of $6,000 on their end. That, I found out in the end, was wrong.

One last thing to note: my 401k (and matching) enrollment didn’t begin until I’d been there 3 months. In other words, my first 401k contribution, and my first matching contribution from Squarespace, happened three months in, in December 2016.

Getting shortchanged?

In 2016 I contributed ~$12K to my Fidelity 401k, from two paychecks in December. The matching contributions I received for 2016, over the next several months, totaled $500.

So here was my contention: I contributed over $6,000 into my 401k in 2016, so I figured they owed $6,000 in matching contributions. But they didn’t. Did I misunderstand?

Asking them about it

I asked HR about this in 2017 a few times — once or twice while I worked there, and then shortly after I left, in May 2017:

Me: I’d expect to see my full 2016 match posted by now… Am I missing something?

HR: Everything should be posted by June or July as Fidelity is a bit behind this year so you can look forward to receiving the remainder of your 2016 match in the next month or so.

Note the failing in my communication here: I didn’t cite specific numbers, so we just kept talking past each other.

When August came and still only $500 in 2016 matching was posted to my 401k, I asked one last time:

Me: My 401k match for 2016 contributions has been variously promised for April, May, June, and July. Now it’s August and it still hasn’t posted.

Guys.

Where is my money?

HR: Apologies on the delay and the back and forth on when it should be taking place…We are hoping to have it all set in the next 4 weeks.

Lawyers!

When 2018 came, I decided I’d need stronger measures to get a straight answer. So I looked for an employment lawyer in New York, and we discussed the matter. We agreed on sending a demand letter to Squarespace.

You have to make a specific demand in a demand letter, so what would we demand? The gist of our discussion was, that in the absence of a straight answer, we’d set a high bar and demand matching for the whole ~$30K I’d contributed for 2016 and 2017. They could spell out how we were wrong, if so. From the demand letter in Jan. 2018:

My laywer: Mr. Parghi is demanding full payment of the [a little less than $30K] which represents the outstanding amount that is owed under Squarespace’s 401k company match benefit program.

Mr. Parghi took part of this company match benefit program during his employment with Squarespace and contributed [approx. $30K], whereas Squarespace only contributed $1,500.00.

With that sent, I honestly wasn’t sure what I’d find out in response. In Feb. 2018 I got this response from Squarespace’s chief counsel (emphasis mine):

Squarespace chief counsel: The language on which you rely does not state that the Company provides a 100% match of an employee’s 401(k) contributions. To the contrary, it states that the specifics of the benefit will be separately provided. The employee manual, made available to Mr. Parghi at the start of, and throughout, his employment explains that Squarespace will match 401(k) contributions up to 4% of an employee’s annual salary. This is also explained in the Fidelity documentation.

So Squarespace and I could agree — I was owed 4% of my annual salary in matching. (Aside: at this point, I felt like I was taking crazy pills.)

In case you’re wondering, the Fidelity documentation they attached — and which I’d already read in my own legwork— said this about the matching structure:

Your employer will make Safe Harbor matching contributions to your account based on your pretax contributions. The amount will equal:
* 100% of the first 3% of your eligible compensation contributed to the Plan
* 50% of the next 2% of your eligible compensation contributed to the Plan

And that adds up to 4%. So this just begs the question — what is my eligible compensation? 4% of what?

Isn’t it just my annual salary, i.e. 4% of $150K = $6,000?

Now what? To quote from the lawyers’ further back-and-forth by email:

Squarespace lawyer: As my letter and the 401(k) documentation said, Squarespace will match up to 4% of an employee’s salary and, as I said in my letter, Mr. Parghi will receive the remaining approximately $1,400 in the coming months.
…
Squarespace lawyer: Perhaps your calculations are off because Mr. Parghi only worked a portion of 2017. The match is 4% of the salary paid, which for 2017 was well below $150,000.

Finally, some insight! (Even though this was in reference to 2017.) Squarespace equates the term “4% of annual salary” with 4% of salary paid in that calendar year.

Now we have the heart of the disagreement laid out plainly. The question is — whose understanding is more legally substantial?

Aside: I later asked for a copy of the “employee manual,” repeatedly referred to, but I got shut down:

Squarespace laywer: We don’t send out our internal policies.

Suing them

I asked my lawyer — am I crazy? Is it worth a shot, to argue in court that “4% of annual salary” must mean 4% of $150,000?

To make things crazier, look at Squarespace’s math in their “First Year Salary & Benefits” (from above):

Annual Salary $150,000
Sign-On Bonus $10,000
Annual 401K Match (4% Of Salary): $6,000

If Squarespace only matches 4% of salary paid during my eligibility period (which started three months into employment), then the most I could get in matching my first year is 4% of 9 months’ salary, or $4,500.

But they promised $6,000. Squarespace’s offer to me was a plain mathematical lie — in addition to their deceptive language.

This disagreement comes down to the definition of compensation for a 401k plan, which I became aware of in my own research.

The Fidelity documentation says Squarespace will match 4% of “my eligible compensation”… But what does “compensation” mean? Is it my annualized salary amount ($150K) or is it only the salary I’m paid in a calendar year? It turns out, according to 401k law, that depends on the plan’s documentation.

From here I was on my own. Writing demand letters is one service, but asking a lawyer to represent you in court is another, more expensive service. But I decided to press my case, so I filed suit in New York City small claims court for “breach of contract” against Squarespace. (That was the box I checked on the form.) In a few days, I got a court date in the mail, for September 2018.

Finally, a straight answer

About a month before our hearing, in August 2018, I got an email from HR asking what was up. I ignored it at first — at that point I just wanted to air things plainly in court. But I changed my mind, and I explained my thinking (emphasis mine):

Me: We can agree the 401k matching limit on Squarespace’s plan is 4% of something ­­ — but 4% of what?…I think it’s 4% of my annual salary, so 4% of $150,000.

HR: Squarespace 401(k) Deferral Match is based on your contributions and the salary paid to you during the year…In short, I don’t believe we (or any other company) could do a safe harbor matching contribution based on something other than compensation paid.

This is not true. I had already worked at a company that based matching contributions directly on what I contributed — I put in a dollar, they put in a dollar. The “balance” of my salary for the plan year was irrelevant in that plan.

Me: If you think “compensation,” as a rigorous 401k term, could only mean actual money paid in the course of the year, well ­­ — that’s not true. (It also flies in the face of what “annual salary” means.) For example, the IRS states compensation *may* be calculated from a period, or it *may* be calculated from the entire year, regardless of participation.

HR: Compensation is broken down/defined in the Summary Plan Description (attached is the 2016 version) which is referenced in the Enrollment Booklet and available via the Hub in a 401(k) info folder. It states: Compensation must be defined to compute contributions under the Plan. For purposes of determining contributions, only Compensation paid to you for services you performed while employed as an Eligible Employee shall be considered. Eligible compensation for computing contributions under the Plan is the taxable compensation for a Plan Year reportable by your Employer on your IRS Form W-2.

(Note: “The Hub” is Squarespace’s internal employee website — a.k.a the employee manual. I didn’t have access to it since I’d left the company 1.5 years before this.)

So finally, finally —days before our hearing — I finally got a clear answer, and a lot to process:

• The Summary Plan Description defined compensation as W-2 wages paid that year, once I became eligible for their 401k (as distinct from my $150,000 “annual salary”).
• Squarespace HR was not aware that a 401k could work any other way.

After all this, I still decided to proceed with my court date the next week, to argue my case on the language (“4% of annual salary”) and numbers in their offer materials and employee manual.

What happened in court

To get at the relevant documents, I sent a subpoena to Squarespace a couple weeks before our court date, for the employee manual and for any discussions between me and HR about our 401k plan. The HR rep brought those materials to our hearing, and I looked through them during the 2-hour wait. There was nothing new in them.

The small claims hearing was very straightforward. I went by myself, and Squarespace sent only their head of HR, whom I’d been communicating with all along. That surprised me — I was expecting a lawyer to come.

We went before an arbitrator (to which we both agreed), because in New York City Small Claims, waiting for a spot in a judge’s calendar can take weeks or months.

The format of the hearing was, basically, that I give my documents, and answer a few questions. Then Squarespace gives their documents, and answers a few questions. It was, basically, one long submission of documents.

I submitted the documents and gave the explanations I’ve cited above. The offer said this, my annual salary was defined as this, etc. etc.

One thing I wish I’d pointed out, that I didn’t in all the proceedings, was how the $6,000 number on their offer sheet was mathematically impossible. But I’d never done this before! Mistakes in my performance were inevitable.

The Squarespace rep offered the Summary Plan Description, pointed out the definition of compensation in it, and said that the document was “offered upon request.” (And as explained by Squarespace HR above, it was linked on the company’s internal website.)

At the end, we were both asked in turn to give our sort of “closing statements”, and I argued that the heart of the matter is, their offer constituted a bait and switch — that no matter what’s in the plan document, the “breach of contract” is that they offered me one 401k plan, and implemented another.

And that was that. I received my verdict in the mail about a week later: a judgment for the defendant (Squarespace), awarding $0 to me. There was no explanation or any comment written.

In the end, Squarespace had paid out about $500 in 2016 matching, when I thought I’d get $6,000. (Similarly for 2017.) That’s 4% of one-twelfth of my annual salary, for the one month of 2016 that I was eligible for their 401k.

Opinions on it all

• What have I learned? It’s hard to say, but maybe, demand originals in the hiring process. This whole thing hinged on what’s in the canonical Plan Document. When it comes to benefits, your company’s explanations and homespun documents and assurances don’t really mean anything. Only the originals matter — and you may have to demand them. It’s a tough lesson to learn — now I know such documents exist. Ah well.
• While you’re at it, I would ask for original/canonical documents for your health care plan as well. I’m not sure that a blanket request like “can you send me every canonical document pertaining to my benefits” would help, but… maybe?
• The whole process was exhausting mostly because of how long it took — not the hours of work I put in, but more the weeks, months, and years spent in confusion.
• I went back and forth on whether to name the company in this post. But in the end, a) the suit is already public record, and b) why not?
• None of this is intended to reflect on the work or people at Squarespace.