With termination clauses under constant scrutiny, employers can still protect their interests by proper drafting and proactive legal review, particularly when it comes to long-term incentive compensation.
Ontario courts continue to scrutinize termination clauses in employment agreements and more often than not, they’re striking them down. However, when it comes to restrictive language in equity compensation plans, a recent court decision drew a firmer line in favour of employers.
In a recent decision, Wigdor v. Facebook Canada Ltd., which is being appealed, the Ontario Superior Court upheld the enforceability of limiting provisions in Meta’s (Facebook’s) RSU plans, being of interest to employers navigating termination-related disputes.
The employee challenged both the validity of the termination clause and the denial of RSU compensation following termination. While the court found the termination clause unenforceable, it nevertheless upheld Meta’s right to deny RSU payouts based on the clear language in the equity agreements.
The Court’s Logic
The Court drew a distinction between general employment contracts and equity plans so that even when termination clauses fall short of ESA requirements and are struck down, RSU or stock option plans with clear limiting language may still be enforced.
The Court made two significant legal clarifications:
- Section 61 of the ESA, which addresses prohibited reprisals, does not prohibit employers from modifying or denying post-employment benefits, such as RSUs. This stands in contrast to Section 60, which restricts changes to terms during the working notice period.
- RSUs, like stock options, do not constitute “wages” under the ESA, which further strengthens an employer’s ability to limit entitlement upon termination, provided the language is precise.
Confusion or Takeaways for Employers
- Clarity in Plain Language Is Critical: Equity plans should always clearly define eligibility, forfeiture conditions, and the impact of termination, especially for terminations without cause.
- Separate Documents, Separate Analysis: Don’t assume that if a termination clause is struck down, all other compensation-related clauses will be too. RSU and option plans are evaluated independently.
- Regular Reviews Are Key: Given how frequently termination clauses are challenged, employers should review and revise employment agreements and compensation documents in tandem to ensure alignment and enforceability.
Conclusion: Despite the Appeal
With termination clauses under constant scrutiny, employers can still protect their interests by proper drafting and proactive legal review, particularly when it comes to long-term incentive compensation.
At Minken Employment Lawyers (Est. 1990), we’ve spent 35 years helping employers and employees navigate the complex landscape of employment law. If you’re reassessing your compensation structures, dealing with a termination dispute, or simply want to ensure your contracts are airtight, our team is here to help. Contact us today at 905-477-7011 or [email protected] for guidance on how to remain compliant and minimize legal risk and expense.
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Please note that this article is for informational purposes only and does not constitute legal advice or opinion.
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