Entitlements to Unvested Stock Options After Termination

Where stock options or restricted share units (RSUs) form a large part of an employee’s compensation, the question of whether that compensation should continue over the reasonable notice period becomes increasingly important. This article aims to answer that question by explaining the key factors the Ontario Courts consider in interpreting stock option plans and deciding whether a wrongfully dismissed employee should be compensated for those lost Unvested Stock Options.

Many employers draft stock options plans with the intention of excluding terminated employees from unvested stock options. However, the starting position, under the law in Ontario, is that dismissed employees are entitled to all the wages, benefits and other forms of compensation he or she would have received had they been working through their reasonable notice period.

Limiting Entitlement to Stock Options and RSUs during the Notice Period

Similar to how companies may limit the length of reasonable notice, or the entitlement to bonuses, during the notice period, employers can, with properly drafted policies, limit an employees entitlements to stock options or RSUs during the termination notice period.

15 years ago, it used to be a lot easier for employers to limit employees’ entitlements to stock options over the notice period. For example, in a 2004 decision of Kieran v. Ingram Micro Inc., the Court denied an employee’s claim for stock option entitlements during the notice period because the employment agreement restricted these entitlements upon termination “for any reason”. The Court concluded this language sufficiently incorporated the employee’s without cause termination.

However, more recently, since at least the Courts decision of Paquette v TeraGo, the law in Ontario holds that employees are entitled to payments unless the language limiting the employee’s rights on termination expressly excluded payment of bonuses upon an employee’s termination without cause. Specifically, in that case, the Court determined that a term that required “active employment” when the bonus is paid, without more, was insufficient to deprive an employee of a claim for compensation for the bonus he or she would have received during the notice period. While this case dealt with bonuses, not stock options, the principles are the same for both.

Read my earlier article for more information on Entitlements to Bonuses after Termination.

Stock option limitations must be clear and unambiguous.

In a recent case, O’Reilly v Imax Corporation, the Court of Appeal for Ontario confirmed that the employer is obliged to pay, among other things, damages to the employee for the loss of unvested stock options unless there is express language in an employment contract or stock option plan or similar document, limiting an employee’s right to compensation for other forms of compensation such as Restricted Share Units, Stock Options during the reasonable notice period.

Whether such “express language in an employment contract or stock option plan” exists is often subject to serious scrutiny in the Courts. Entitlements to stock options at termination but only if the language is clear and unambiguous. The enforceability of these agreements depends on the particular circumstances of each case.

Stock option limitations must be drawn to the attention of the employee.

Battiston v. Microsoft Canada Inc highlights that having a well-drafted and legally compliant contractual provision may not be sufficient. In this case, the employee was awarded damages for the stock options that were scheduled to vest during the notice period because the employer failed to bring the limitations in the stock option plan after termination to the employee’s attention at the time he accepted the terms and conditions of the stock awards.

The Court considered the termination provisions in the Stock Award Agreements as “harsh and oppressive” since they barred Mr. Battiston’s right to have unvested stock awards vest if he had been terminated without cause. As a result, the court ruled “reasonable measures must be taken to draw harsh and oppressive terms to the attention of the employee.”

So, in addition to clear and unambiguous language in agreement terms, the Courts hold that any harsh or negatively restrictive conditions contained within those documents must be explicitly communicated to the employee.

Conclusions

In summary, Canadian courts have made it clear that unless companies are extremely careful in the wording of stock option plans, these plans will be interpreted to allow employees dismissed without cause to accumulate and exercise their stock options until the end of the reasonable notice period. To avoid this outcome employers must make sure to use wording in the stock option plan that limits an employee’s right to exercise options after a certain point in time. In situations where careful and clear wording does not exist or where such limitations are not brought to the employee’s attention, Courts will interpret stock option plans against the employer and the trigger date for the termination of the options will not commence until the end of the reasonable notice period.


Contact Justin W. Anisman

Contact Justin W. Anisman, the author of this blog, about any employment law related questions or issues you may be facing. Call 416-304-7005 or email him at janisman@btlegal.ca.

Justin W. Anisman is an Employment Lawyer at the Toronto law firm Brauti Thorning LLP. Justin advises both companies and individuals in all aspects of employment law including wrongful dismissal, human rights and discrimination.


The publications made on this website are provided and intended for general introductory information purposes only. They do not constitute legal or other professional advice, or an opinion of any kind. Speak to a professional before making decisions about your own particular circumstances.

Employment Law for EMS, Healthcare Workers and Health Professionals

If you work in emergency medical services (EMS), healthcare or are otherwise a health professional, then there are special exceptions and rules that govern the minimum standards of employment for you in Ontario.

Who Do these Special Exceptions Apply to?

 

  • Ambulance drivers and driver’s helper or first-aid attendant on an ambulance
  • Audiologists
  • Chiropodists and chiropody students
  • Chiropractors and chiropractic students
  • Dental Hygienists
  • Dental technologists
  • Dentists and dentistry students
  • Denturists
  • Dieticians
  • Firefighters
  • Hospital employees
  • Massage therapists and massage therapy students
  • Medical laboratory technologists
  • Medical radiation technologists
  • Midwives
  • Naturopaths and naturopathy students
  • Nurses
  • Occupational therapists
  • Opticians
  • Optometrists and optometry students
  • Paramedics and emergency medical attendants
  • Pharmacists and pharmacy students
  • Physicians, surgeons and medical students
  • Physiotherapists and physiotherapy students
  • Psychologists and psychology students
  • Residential care workers
  • Respiratory therapists
  • Speech-language pathologists
  • Veterinarians and veterinary students

 

What are the Special Exceptions?

 

Occupational Group

Special Rule/Exemption

Ambulance drivers and driver’s helper or first-aid attendant on an ambulance

You are not entitled to overtime pay.

Audiologists

Dental Hygienists

Dental technologists

Midwives

Opticians

Speech-language pathologists

You are not entitled to sick leave, family responsibility leave or bereavement leave if taking the leave would be professional misconduct or abandoning your duty

 

Chiropodists and chiropody students

Chiropractors and chiropractic students

Dentists and dentistry students

Denturists

Dieticians

Massage therapists and massage therapy students

Naturopaths and naturopathy students

Optometrists and optometry students

Pharmacists and pharmacy students

Physicians, surgeons and medical students

Physiotherapists and physiotherapy students

Psychologists and psychology students

Veterinarians and veterinary students

You are not entitled to:

  • Minimum wage
  • Eating periods
  • Overtime pay
  • Sick leave, family responsibility leave or bereavement leave if taking the leave would be professional misconduct or abandoning your duty
  • Public holidays or public holiday pay
  • Vacation with pay
  • Daily and weekly limits on hours of work
  • Daily rest period
  • Time off between shifts
  • Weekly/bi-weekly rest periods
  • Daily rest period

Firefighters

You are not entitled to:

  • Daily and weekly limits on hours of work
  • Daily rest periods
  • Time off between shifts
  • Weekly/bi-weekly rest periods
  • Overtime pay
  • Public holidays or public holiday pay

Hospital Employees

If you work in a hospital, long-term care home or health care facilities:

  • You may be required to work on a public holiday if the public holiday is normally a working day for them and you are not on vacation.
  • If required to work on a public holiday, your employer may either:
    • Pay you at your regular rate for the hours you work on the public holiday and provide you with a substitute day off work with public holiday pay or
    • Pay you public holiday pay plus premium pay for the hours you work on the public holiday.

Medical Laboratory Technologists

Medical Radiation Technologists

Nurses

Respiratory Therapists

You may not be entitled to sick leave, family responsibility leave or bereavement leave if taking the leave would be professional misconduct or abandoning your duty.

If you work in a hospital, you may be required to work on a public holiday if the public holiday is normally a working day for you and you are not on vacation.

If you are required to work on a public holiday, your employer may either:

  • Pay you at their regular rate for the hours they work on the public holiday and provide you with a substitute day off work with public holiday pay or
  • Pay you public holiday pay plus premium pay for the hours you work on the public holiday.

Paramedics and Emergency Medical Attendants

If you are a paramedic or emergency medical attendant in the land and air ambulance industry and are represented by a union:

  • You are not entitled to overtime pay.
  • Your employer and union may agree in writing that:
    • The general rest period rule does not apply and they are entitled to eight consecutive hours free from work each day
    • The general eating period rule does not apply and they are entitled to a different eating period set out in the written agreement

Residential Care Workers

If you work supervising and caring for children or persons with developmental disabilities in family-type residential homes and they live in the home during work periods, they are entitled to:

  • Public holidays
  • Vacation with pay
  • Notice of termination/termination pay
  • Severance

You are not entitled to:

  • Daily or weekly limits on hours of work
  • Daily rest periods
  • Time off between shifts
  • Eating periods
  • Overtime pay
  • Be paid for time you spend at the workplace eating, sleeping, resting or attending to your own affairs, even if you are on call during that time
  • The general minimum wage rate: instead, you are entitled to a regular rate of pay that equals at least the minimum wage rate for the lesser of the number of actual hours worked or 12 hours
  • The general weekly/bi-weekly rest period: instead, you are entitled to at least 36 hours free from work each week

You may be entitled to up to 15 hours of pay per day if you worked more than 12 hours in a day and you:

  • Have accurate records of the hours you worked
  • Provide those records to your employer immediately after the pay day for the period in which the extra hours were worked, and before the next pay period

You may agree to take multiple rest periods instead of one rest period of 36 consecutive hours. If you agree to work during your rest period(s), your employer must:

  • Pay you at least one and one-half times your regular rate of pay for the hours you work, or
  • Add the hours you work to one of their next eight 36 hour rest periods.

 


Contact Justin W. Anisman

Contact Justin W. Anisman, the author of this blog, about any employment law related questions or issues you may be facing. Call 416-304-7005 or email him at janisman@btlegal.ca.

Justin W. Anisman is an Employment Lawyer at the Toronto law firm Brauti Thorning LLP. Justin advises both companies and individuals in all aspects of employment law including wrongful dismissal, human rights and discrimination.


The publications made on this website are provided and intended for general introductory information purposes only. They do not constitute legal or other professional advice, or an opinion of any kind. Speak to a professional before making decisions about your own particular circumstances.