Ontario Court of Appeal provides clarity on the termination of unvested stock awards

The Ontario Court of Appeal has overturned the trial judge’s decision in Battiston v Microsoft Canada Inc. This decision provides some helpful insights as to what constitutes adequate notice of termination provisions in stock option agreements and other stock awards.

Background

Mr. Battiston was terminated without cause after almost 23 years of service. He brought an action for wrongful dismissal claiming, among other things, damages for all stock awards that were scheduled to vest during the common law reasonable notice period. The Stock Award Agreement expressly provided that if award holders’ employment was terminated for any reason, their stock awards would cease to vest as of the date of termination and the vesting period would not be extended by any notice period. 

Superior Court of Ontario

The Ontario Superior Court of Justice ruled that the termination provisions in the Stock Award Agreement were not adequately drawn to Mr. Battiston’s attention and could not be enforced because they were harsh and oppressive. Specifically, the trial judge found that the email notifications alerting the employee of stock awards year to year did not constitute “reasonable measures” to bring the harsh and oppressive terms of the termination provisions to the employee’s attention, notwithstanding the employee’s click box confirmation of the terms. For this reason, the employee was awarded damages in lieu of the stock awards that were scheduled to vest during the notice period. For more details on the decision at Superior Court, see our previous update. 

Ontario Court of Appeal

The Ontario Court of Appeal reversed the trial judge’s conclusion, finding that the employee was not entitled to the stock awards that were unvested as at the date of his termination. In particular, the Court of Appeal found that the trial judge’s conclusion did not consider the following:

• for 16 years the employee expressly agreed to the terms of the agreement when he clicked a box to confirm that he had read, understood and accepted the Stock Award Agreement;
• the employee made a conscious decision not to read the agreement despite indicating that he did read it by clicking the box confirming such; and 
• as a result of the employee’s misrepresentation to the employer that he read, understood and accepted the stock award agreement, he put himself in a better position than an employee who did not agree to the Stock Award Agreement termination provision. 

The appeal was allowed with costs in the amount of $20,000 awarded in favour of the employer. 

Key takeaways for employers

This decision offers reassurance to companies that providing their employees with a copy of the stock option plan or other incentive compensation agreement at the time of grant to read, review, and acknowledge should be sufficient to uphold the terms of such plan or agreement, without needing to draw attention to specific provisions. To rely on this assurance, employers should ensure that their employees expressly agree to the terms of the options or other stock awards at the time of grant.