A recent Ontario Court of Appeal decision has significant implications for employers that use restricted stock units (RSUs) and other forms of equity-based compensation as part of their compensation strategy. While the case arose in the context of a wrongful dismissal claim, the court's analysis extends beyond the particular facts and has the potential to affect the enforceability of termination provisions contained in many equity compensation plans.
What Happened?
The employee was dismissed without cause and successfully challenged the enforceability of his employment agreement's termination provisions. As a result, he was entitled to 10 months' common law reasonable notice. The principal issue on appeal concerned whether he was also entitled to recover the value of RSUs that would have vested during that notice period.
The Court of Appeal concluded that he was.
In doing so, the Court held that provisions in the employer's RSU agreements that terminated vesting and forfeited unvested awards immediately upon termination contravened the Employment Standards Act, 2000 (ESA). Specifically, the Court found that the provisions altered a "term or condition of employment" during the statutory notice period and were therefore void. Because the forfeiture provisions did not lawfully displace the employee's common law rights, the employee was entitled to damages reflecting the value of the RSUs that would have vested during the reasonable notice period. The resulting award exceeded...
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