Stocks for the Departing Employee

 In Employment Law

In the field of employment law the following two principles are well established:

  1. A wrongfully dismissed employee is entitled to damages for the loss of wages and salary as well as other incentives such as bonuses and stock options that they would have been earned during the notice period.
  2. Employers are permitted to limit the scope of the damages they might be required to pay to their dismissed employees but only if they do so unambiguously and expressly.

The question about whether the employer had in fact unambiguously limited its obligation to pay bonuses and damages for unvested stock options was front and center in the recent decision of Battiston v. Microsoft Canada Inc., 2020 ONSC 4286 (CanLII).

The case involved Fransic Battiston who had worked for Microsoft Canada for almost 23 years.  Battiston was paid an annual salary together with benefits including merit increases, cash bonuses and stock awards under the company’s Rewards Policy.  For Battiston, these benefits represented about 30% of his total compensation.

In August 2018 Microsoft terminated Battiston’s employment on a without cause basis shortly after Microsoft’s fiscal year (June 30, 2018).  One of the claims advanced by the plaintiff was that he was entitled to damages for his awarded but unvested stock.  Microsoft took the position that upon termination the terms of its Stock Award Agreement clearly disentitled Battiston from being able to vest any granted but unvested stock awards.

On this issue, the Court sided with Battiston and held that Microsoft had failed to properly bring the limiting language in the Stock Award Agreement to the employee’s attention and as such the employee was entitled to receive damages in lieu of 1057 unvested shares.

In arriving at this decision the Court found the stock awards were an integral part of Battiston’s compensation package, and thus prima facie triggered a common law entitlement to damages in lieu of bonus.  Despite this common law entitlement, the Court found that the language of the Stock Award Agreement unambiguously excluded Battiston’s right to vest his stock awards after he had been terminated without cause.  At this point, one would think that Battiston would be departing the organization without his stocks.   Nevertheless, the Court concluded that the Stock Award Agreements could not be enforced because they had not been specifically brought to Battiston’s attention.  Justice Faieta commented that he found the termination provisions in the Stock Award Agreements harsh and oppressive and an annual email that included the language of the Stock Award Agreement limiting the employee’s entitlements, was not enough to satisfy the requirement to provide notice of these limitations.

Take away for Employees

  • If your employment is terminated, take the time to get advice which fully explores whether, in addition to pay in lieu of notice, you have other entitlements particularly if you received benefits that were a central part of your compensation.

Take away for Employers

  • When it comes to restricting an employee’s entitlements clear and unambiguous language is essential, but not sufficient.
  • Restrictions on an employee’s right to a benefit must be specifically brought to the employee’s attention. Further a yearly email is not enough to satisfy the obligation to give employees notice.
  • Justice Faieta’s comment that he found the termination provisions to be harsh and oppressive suggests that where termination provisions are perceived to be particularly adverse to the employee, the employer will be expected to establish that they made more than a passing effort to draw information to their employee’s attention.

This blog post was written by Colleen Hoey, a Partner in the Employment team.  She can be reached at 613-369-0366 or at Colleen.Hoey@mannlawyers.com.

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