Forfeiture fortified: What Wigdor v Facebook Canada Ltd. means for equity-based awards

Recently, the Ontario Superior Court of Justice in Wigdor v Facebook Canada Ltd. upheld the enforceability of contractual forfeiture provisions for restricted stock units (RSUs), a decision that will interest employers that offer employees forms of non-cash-based equity compensation.

Background

Dr. Daniel Wigdor was hired by Facebook Canada Ltd. in 2020 following Meta Platforms Inc.’s acquisition of his consulting company. As part of his compensation package, he was eligible to receive grants of RSUs in accordance with Meta’s 2012 Equity Incentive Plan and the RSU Agreements. 

When Facebook Canada dismissed Dr. Wigdor without cause in December 2023, he claimed that those RSUs granted to him – valued in the millions of dollars – should continue to vest throughout the applicable notice period. The RSU Agreements contained forfeiture provisions, providing among other things, that all unvested RSUs would be forfeited upon termination of employment and the RSUs granted would not continue to vest during any notice period, including the statutory notice period under Ontario’s Employment Standards Act, 2000 (ESA), the contractual notice period and the common law notice period. 

RSUs are not “wages” or “benefits” under the ESA

Dr. Wigdor argued the 2020 RSU Agreement violated the ESA, which requires employers to maintain all “terms and conditions of employment” during the statutory notice period. The court reviewed the statutory framework applicable to the case. Section 61(a)(b) of the ESA applies to an employer’s provision of pay in lieu of notice and states the employer must “continue[s] to make whatever benefit plan contributions would be required to be made in order to maintain the benefits to which the employee would have been entitled had he or she continued to be employed during the period of notice that he or she would otherwise have been entitled to receive.” 

In contrast, section 60 of the ESA, which applies to the employer’s provision of working notice, requires that in addition to wages and benefit plans, employers must not “alter any other term or condition of employment.” Section 60 of the ESA was not engaged in this case. 

Ultimately, the court held that RSUs, like stock options, are not “wages” for ESA purposes; nor are they considered “benefit plan contributions,” and therefore, RSU vesting need not be extended for the statutory notice period when an employer elects to provide an employee with pay in lieu of notice. 

Forfeiture provisions unambiguous and enforceable

Dr. Wigdor also argued the 2021-2023 RSU Agreements were misleading because the forfeiture language provided that unvested RSUs are forfeited upon termination unless “applicable employment standards legislation explicitly required continued entitlement to vesting during a statutory notice period.” 

Dr. Wigdor submitted that because the ESA does not expressly require RSUs to vest during the statutory notice period,  including wording that suggests the legislation could require vesting imports an ambiguous term into the RSU Agreements. He argued that therefore, the entire forfeiture provision was void. Lastly, Dr. Wigdor alleged the forfeiture language in both RSU Agreements unlawfully contracted out of the ESA despite the presence of a “saving provision." Combined, this latter language provided that “all RSUs will be forfeited” even if the termination is later found “invalid” or “unlawful” or “in breach of employment laws.”

The court disagreed with Dr. Wigdor’s arguments and upheld the enforceability of the forfeiture provisions, including the savings provision in the 2021-2023 RSU Agreements and the language that permitted forfeiture of the RSUs even if the termination was later found to be in breach of employment laws.

While the court upheld the validity of the forfeiture provisions, it found that the termination provision contained in Dr. Wigdor’s employment agreement was unenforceable. Notably though, Dr. Wigdor’s entitlements to RSUs were treated as contractually independent from his employment termination entitlements, and so while he was awarded common law reasonable notice for the termination of his employment, his unvested RSUs were forfeited in accordance with the terms of the clear and unambiguous RSU Agreements. 

Takeaways for employers

This case is important because it reinforces that RSU vesting need not be extended for the statutory notice period under the ESA when an employer elects to provide an employee with pay in lieu of notice. It also serves as a reminder to review RSU and other equity compensation agreements to ensure they are clear and unambiguous. Finally, although RSUs are currently outside of the ESA’s definition of “wages,” that could change. The “savings language” upheld in Wigdor underscores the value of futureproofing: state that vesting will track statutory requirements as and when they evolve.