In the recently released decision of Battiston v Microsoft Canada Inc., the Ontario Superior Court of Justice held that a stock award agreement's termination provisions were unenforceable. While the termination provisions unambiguously displaced the employee's right to unvested stock awards upon termination without cause (including any stock awards that might otherwise vest during a notice period), the employer did not bring the termination provisions to the employee's attention when he accepted the terms and conditions of the stock awards. For this reason, the employee was awarded damages in lieu of the stock awards that were scheduled to vest during the notice period.

What happened?

Mr. Battiston was employed for almost 23 years until his without-cause dismissal in 2018. In addition to his base salary, he had received annual merit increases, cash bonuses, and stock awards under the employer's rewards policy. Among other things, the employer took the position that Mr. Battiston was not entitled to the vesting of any granted -- but unvested -- stock awards upon his termination. Mr. Battiston 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.

Stock award grants were communicated to employees by email, which included a link for employees to complete the online acceptance process. The online acceptance process involved reading and accepting the Stock Award Agreement and accompanying documents. The email expressly directed the employee to read through the online terms and conditions of the stock award, as follows:

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 save [sic] 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.

Questions? Please find additional information about stock awards on HRWeb.

The online Stock Award Agreements contained termination provisions that stipulated unvested awards would be forfeited on termination of employment, whether with or without cause:

(m) consistent with Section 4 above, for purposes of the Award, Awardee's Continuous Status as a Participant will be considered terminated as of the date Awardee no longer is actively providing services to the Company or a Subsidiary (regardless of the reason for such termination and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where Awardee is employed by the terms of Awardee's employment agreement, if any), and unless otherwise expressly provided in this Award Agreement or determined by the Company, Awardee's right to vest in SAs under the Plan, if any, will terminate as of such date and will not be extended by any notice period (e.g. Awardee's period of service would not include any contractual notice period or any period of "garden leave" or similar period mandated under employment laws in the jurisdiction where Awardee is employed on the terms of Awardee's employment agreement, if any); the senior corporate officer in charge of the Human Resources department or the Committee shall have the exclusive discretion to determine when Awardee is no longer actively providing services for purposes of the Award of SAs (including whether Awardee still may be considered a Continuous Status as a Participant while on a leave of absence);

[Emphasis added by court]

Mr. Battiston testified that although he received the stock award email and completed the online acceptance process, his practice was to simply click "Accept" without reading the Stock Award Agreements because of their length.

He also testified that his employer did not specifically draw his attention to the termination provisions. Mr. Battiston took the position that:

  • the Stock Award Agreements did not unambiguously oust his entitlement to the vesting of stock awards during the common law reasonable notice period;
  • in the alternative, the Stock Award Agreements' termination provisions were onerous and unenforceable as the employer did not bring those provisions to his attention; and
  • in the further alternative, the termination provisions were void on the grounds that the stock awards constituted "wages" under the Ontario Employment Standards Act, 2000 (the ESA) and therefore the termination provisions were void as they disentitled Mr. Battiston to the vesting of stock awards during the statutory notice period.

What did the court decide?

The court determined that the Stock Award Agreements' termination provisions unambiguously displaced an employee's right to unvested stock awards during the common law notice period. Specifically, the court found, "The presumption that termination must be according to law in order to end an employee's right to vest stock options is rebutted."1

Nevertheless, the court found the termination provisions to be unenforceable because they were onerous and the employer failed to bring them to Mr. Battiston's attention. Relying on contract law principles and bonus-related jurisprudence, the court held that, "Reasonable measures must be taken to draw harsh and oppressive terms to the attention of the other party," failing which those terms will not be enforced. The court found the termination provisions in the Stock Award Agreements were "harsh and oppressive as they precluded Mr. Battiston's right to have unvested stock awards vest if he had been terminated without cause."2

Moreover, the emailed stock awards notifications did not constitute "reasonable measures" to bring these harsh and oppressive terms to his attention. Accordingly, the court awarded Mr. Battiston the value of the shares that were scheduled to vest during his common law notice period.

Having reached this conclusion, the court did not address Mr. Battiston's third argument that the termination provisions were void under the ESA.

Key takeaways for employers

With this in mind, employers would be well served to ensure termination provisions purporting to limit an employee's entitlements on termination are expressly brought to the employee's attention for his or her review and consideration prior to acceptance. There is a significant risk that simply providing an employee with a copy of the subject agreement to read, review, and acknowledge will not suffice.

Footnotes

1 Decision, at para 63.

2 Decision, at para 70.

Originally published 10 August, 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.