Court of Appeal: Employee had no right to Damages for Unvested Stock Awards After Termination
Last year the Ontario Superior Court awarded a former Microsoft employee 23.75 months’ pay in lieu of notice following his without cause dismissal from employment. The court’s award included damages for stock awards that would have vested during the applicable notice period.
Microsoft argued that the employee had no right to damages for loss of unvested stock as the governing Stock Award Agreement (the “Agreement”) contained clear termination language displacing this entitlement. In response, the employee argued, among other things, that Microsoft could not rely on the termination provision within the Agreement as it had failed to reasonably bring this term to his attention.
The court found in favour of the employee on this issue. In so doing, it:
accepted the employee’s evidence “that he was unaware of these termination provisions and that these provisions were not brought to his attention by Microsoft”; and
Microsoft’s “email communication that accompanied the notice of the stock award each year does not amount to reasonable measures to draw the termination provisions to Battiston’s attention.”
The email notice in question, which was provided to the employee for 16 years in a row, stated:
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.
On each occasion the employee received this email notice he clicked a box to confirm having read, understood and accepted the terms (including the applicable termination language). He did this despite never reading the Agreement and remaining unaware of the associated termination provision.
Microsoft appealed the court’s decision to award damages for unvested stock options over the notice period. Earlier this week, the Court of Appeal for Ontario (“ONCA”) allowed Microsoft’s appeal and overturned this aspect of the trial decision. The ONCA found that, for the following reasons, the trial judge erred by concluding the termination provisions had not been brought to the employee’s attention:
For 16 years the employee expressly agreed to the terms of the Agreement;
The employee made a conscious decision not to read the Agreement despite indicating he did read it by clicking the box confirming such; and
By misrepresenting his assent to Microsoft, the employee put himself in a better position than other workers who did not misrepresent, thereby taking advantage of his own wrongful action.
Takeaways for Ontario Employers and Employees
This case provides guidance to both employers and employees. For employees, it is a helpful reminder to take the time to review contractual terms prior to signaling agreement. In this case, the employee’s downfall appeared to lie in the fact that he received the same notification every year, which required that he read the Agreement as a condition of receiving the proposed award and emphasized the importance of these underlying terms by noting that a failure to read and accept the applicable terms may result in the forfeiture of future grants. Simply put, in this particular situation, the employer encouraged the employee to review the applicable terms and provided a reasonable opportunity to do so. The ONCA also noted the perverse incentive for an individual to misrepresent to her employer having read and accepted contractual terms and, as a result, end up in a better position than employees who represented honestly.
As for employers, this case serves as a lesson in the importance of taking steps to ensure that important contractual terms are reasonably brought to an employee’s attention or risk being unable to rely on those terms at a later date. Employers should be sure to check their processes for communicating contractual terms, and keep records to show these efforts.
While Microsoft was successful on appeal in this case, its actions were far from perfect. There was no evidence to show, for example, that Microsoft had: taken the proactive step of providing a hard copy of the Agreement to its staff; offered an information session on shareholder rights; or distributed a PowerPoint document highlighting key provisions from the Agreement. Each of these steps could have been taken with relatively minimal cost involved. As such, while every case turns on its own facts, employers should be wary of seeking to rely on onerous contractual terms, particularly where those terms may be buried within complex, lengthy and legalese-laden documents.
Vey Willetts LLP is an Ottawa-based employment and labour law boutique that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in the National Capital Region and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.
