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The HR Space

Click Wrapped: Termination Provisions In Stock Award Agreement Upheld

Fasken
Reading Time 3 minute read
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Overview

Labour, Employment & Humans Rights Law Bulletin | HR Space

Stock awards are often used by employers to attract, reward and retain employees. While these tools can be useful to retain talent, they can be a source of significant liability for employers if they do not include well-drafted provisions limiting entitlements upon termination of employment. In recent years, employers have also been confronted with the possibility that such provisions in bonus, stock award, or other incentives plans would not be enforced if they were not brought to the attention of employees.

In a welcome decision for employers, the Ontario Court of Appeal in Battiston v. Microsoft Canada Inc. held that an employee who signs an acknowledgement of having read the employer’s stock option agreement will be bound by the terms of that agreement, including those dealing with entitlements upon termination of employment, whether the employee actually read them or not.

Background

Every year in the course of his employment, the employee received benefits, including stock awards under the employer’s rewards policy. The award of a stock bonus to employees, was communicated by an email which typically stated the following:

Congratulations on your recent stock award! To accept this stock award, please go to My Rewards and complete the online acceptance process. A record will be saved indicating that you have read, understood and accepted the stock award agreement and the accompanying Plan documents. Please note that failure to read and accept the stock award and the Plan documents may prevent you from receiving shares from this stock award in the future.[1]

The employer’s Stock Award Agreement (the “Agreement”) provided that any unvested stock awards would not vest if the employee’s employment ended for any reason. The employee had expressly agreed to the terms of the Agreement for 16 years by clicking the box confirming he had read the Agreement despite claiming at trial that he had not read it.

Following his termination, the employee successfully argued at trial that the termination provisions in the Agreement were not drawn to his attention and could therefore not be enforced. The employer appealed the trial decision with respect to the employee’s entitlement to the unvested stock awards after his termination.

What Was Decided on Appeal? 

The Court of Appeal reversed the trial judge’s decision. The Agreement unambiguously excluded the respondent’s right to vest his stock awards after termination without cause. For 16 years the employee had expressly agreed to the terms of the Agreement when he checked the box indicating that he had read the Agreement despite having taken the conscious decision not to read the Agreement. The employee could not take advantage of his own misrepresentation to his employer in order to put himself in a better position than an employee who actually read the Agreement and checked the box indicating so.

Key Takeaways

With this decision, the Court of Appeal has reassured employers that employees who signify their acknowledgement of bonus, stock award, or other incentive agreements can be bound by them, including their termination provisions, whether the employee read them or not.

Employers should remain mindful that the manner in which they communicate the terms of an award agreement can impact the enforceability of those critical provisions dealing with entitlements on termination. Employers should still have means to prove their plans were sent and read. They would also do well to emphasise those critical termination provisions for employees.

Additionally, employers must ensure that their contractual termination provisions are clear and unambiguous as the courts may continue to identify ambiguous language, which could limit an employees’ entitlements upon termination.

If you need advice on this subject, please contact the authors or your regular Fasken lawyer.

* The Battiston v. Microsoft Canada Inc. decision is currently subject to an application for leave to appeal to the Supreme Court of Canada.


[1] Battiston v. Microsoft Canada Inc., 2021 ONCA 727, para 6

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