A recent Ontario Court of Appeal (“ONCA”) decision highlights the potentially significant consequences for employers where equity compensation agreements fail to preserve an employee’s minimum statutory entitlements following termination.

In Wigdor v Facebook Canada Ltd [Wigdor], the ONCA held that provisions requiring an employee to forfeit unvested Restricted Stock Units (“RSUs”) immediately upon termination contravened Ontario’s Employment Standards Act, 2000 (“ESA”). As a result, the provisions could not limit the employee’s common law entitlement, and the Court awarded him an additional US$4.7 million for RSUs that would have vested during his 10-month reasonable notice period.

Background

In 2020, following Meta Platforms Inc.’s (“Meta”) acquisition of the employee’s company, Chatham Inc., the employee joined Facebook Canada Ltd. (“Facebook”) as Director of Research Science.

As part of the acquisition and his subsequent employment, the employee received significant RSU grants under an Equity Incentive Plan and annual RSU agreements. The RSUs vested periodically during his employment and formed part of his overall compensation.

The RSU agreements provided that unvested RSUs would generally be forfeited when the employee’s employment ended. The 2020 agreement expressly provided that vesting would not continue during any statutory, contractual, or common law notice period. The later agreements similarly provided for forfeiture upon termination, subject to rights “explicitly required by applicable legislation”.

Facebook terminated the employee’s employment without cause in December 2023. The employee declined to sign a release that would have prevented him from challenging the forfeiture of his unvested RSUs and commenced a wrongful dismissal application.

At first instance, the Ontario Superior Court of Justice (“ONSC”) found that the termination provision in the employee’s employment agreement contravened the ESA and awarded him ten months of common law reasonable notice. However, the ONSC upheld the RSU forfeiture provisions and declined to award damages for RSUs that would have vested during that period. The employee appealed the RSU determination.

Decision

The ONCA allowed the employee’s appeal.

The Court held that sections 60 and 61 of the ESA must be read together. Section 60 prohibits employers from altering an employee’s terms and conditions of employment during the statutory notice period, while section 61 requires an employer providing pay in lieu of notice to compensate the employee for what they would have received had they continued working during that period. Reading the provisions together ensures that an employee is not placed in a worse financial position simply because the employer elects to provide pay in lieu rather than working notice.

The ONCA found that the employee’s RSU entitlements constituted a “term or condition of employment.” In reaching that conclusion, the Court noted that the RSU entitlement was set out in a letter incorporated into the employee’s employment agreement; the employer’s annual report described its Equity Incentive Plan as a “compensation plan”; the RSUs vested regularly throughout the employee’s employment; and the RSUs were treated as taxable benefits upon vesting.

Because the RSU agreements purported to stop vesting immediately upon termination, including during the employee’s statutory notice period, the ONCA held that the provisions impermissibly altered a term or condition of employment contrary to section 60 of the ESA and were therefore void.

The saving language in the later RSU agreements did not change that result. Those agreements preserved rights “explicitly required by applicable legislation”, but the Court found that this wording did not preserve the employee’s entitlement arising from the operation of sections 60 and 61 of the ESA.

Notably, Wigdor was released shortly after the ONCA’s decision in Baker v Van Dolder’s Home Team Inc [Baker], where the Court gave effect to saving language providing that employees would receive any minimum compensation or entitlements prescribed by the ESA. By contrast, the saving language in Wigdor applied only where continued vesting was “explicitly required” by legislation. Because the ESA does not expressly address continued RSU vesting, the Court found that the saving language was not engaged. For a more detailed discussion of Baker, see our recent blog on the decision.

The ONCA ultimately found that 9,405 RSUs would have vested had the employee remained employed during the 10-month reasonable notice period and accordingly increased his damages by US$4,711,647.29.

Takeaways for Employers

• Equity Compensation Provisions Must Preserve ESA Minimums: Employers may be able to limit an employee’s entitlement to RSUs or other incentive compensation following termination, but any limitation must first preserve the employee’s minimum entitlements under the ESA. In Wigdor, the defective provisions did not simply result in continued vesting during the employee’s statutory notice period. Because the provisions contravened the ESA, they could not operate to remove his common law entitlement, exposing the employer to damages for RSUs that would have vested throughout the substantially longer 10-month reasonable notice period.
• Review Saving Language for ESA Compliance: Wigdor should not be read as establishing that saving language can never preserve an otherwise problematic provision. In Baker, released shortly before Wigdor, the ONCA gave effect to broader language preserving the employee’s minimum entitlements under the ESA when the agreement was read as a whole. Wigdor demonstrates, however, that narrower language may not provide the same protection. Employers should review termination and forfeiture provisions to ensure that any saving language is sufficiently broad to preserve all minimum entitlements arising under the ESA, including those not expressly identified in the legislation.
• Not All Equity Compensation Arrangements Are Treated Alike: While Wigdor confirms that equity-based compensation can constitute a “term or condition of employment” that must be maintained during the ESA statutory notice period, this characterization is not automatic. In reaching its conclusion, the ONCA specifically distinguished its earlier decision in Mikelsteins v Morrison Hershfield Limited, where an employee was required to use his own funds to purchase shares in the employer’s parent corporation and his rights were governed by a separate shareholders’ agreement. In contrast to Wigdor, those entitlements were held to be separate from his employment rights and not subject to the ESA. Accordingly, whether an equity arrangement forms part of the employment relationship will likely depend on both the nature of the entitlement and how the relevant employment and equity agreements are structured. Employers should therefore review their equity arrangements and, where they form part of employment compensation, ensure that any termination or forfeiture provisions preserve employees’ minimum ESA entitlements.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.