Ontario Court of Appeal found worker misrepresented for years that he had read terms of agreement
Employers may be pleased to learn that the Supreme Court of Canada recently denied leave to appeal of an Ontario Court of Appeal decision upholding a termination clause in a stock award agreement that limited an employee’s entitlements to stock awards upon termination of employment.
Previously, the Supreme Court of Canada stated that employment relationships are typically characterized by unequal bargaining power, which places employees in a vulnerable position vis-à-vis their employers. It is on this basis that courts generally rule in favour of an employee when it comes to an employee’s entitlements upon termination.
For example, where a clause in an employment agreement limits an employee’s entitlements to compensation or incentive awards upon the termination of their employment and the clause is ambiguous, courts will typically find that such a clause does not limit the employee’s entitlements.
That decision — Wallace v. United Grain Growers Ltd — came out in October 1997.
2021 decision
In Battiston v. Microsoft Canada Inc., Fransic Battiston’s employment was terminated by Microsoft Canada after 23 years of employment. In addition to his base salary, Battiston received stock awards every year pursuant to Microsoft’s stock award agreement. Upon the termination of employment, Microsoft took the position that he was no longer entitled to the vesting of any granted but unvested stock awards, in accordance with the stock award agreement.
Each year during Battiston’s employment with Microsoft, he received an email with an updated stock award agreement, which instructed him to accept the stock award online. Battiston was required to click a box to confirm that he had read, understood and accepted the agreement.
The stock award agreement contained the following clause, which sought to limit Battiston’s entitlement to unvested stock awards upon the termination of his employment: “In the event of termination of awardee’s continuous status as participant (as such term is defined in the plan), awardee’s rights under this award agreement in any unvested SAs shall terminate... For the avoidance of doubt, an awardee’s continuous status as a participant terminates at the time awardee’s actual employer ceases to be the company or a ‘subsidiary of the company’ as that term is defined in Section 2(y) of the plan.”
The agreement further stated that Battiston’s status as a participant in the plan would 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 his right to vest in stock awards would terminate as of the termination date and would not be extended into any notice period.
A just-cause provision in a termination clause breached the Employment Standards Act with a broader standard for denying termination pay, an Ontario court ruled.
Trial decision
During the trial, Battiston testified that he did not read the lengthy stock award agreements nor did Microsoft draw his attention to the termination clause. Battiston testified that he was under the impression that he would be eligible to cash out his granted but unvested stock awards in the event that he was terminated without cause.
The trial judge found that the stock award agreement unambiguously excluded Battiston’s right to vest his stock awards after he was terminated from his employment. Despite this, the trial judge also found that the terms were unenforceable because they were harsh and oppressive and because Battiston was not given notice.
The trial judge also accepted Battiston’s evidence that he was unaware of the termination provisions and Microsoft didn’t bring them to his attention. Microsoft’s email communication that accompanied the notice of the stock award each year did not amount to reasonable measures to draw the termination provisions to Battiston’s attention, said the court.
Microsoft appealed the decision on the basis that the trial judge erroneously held that the termination clause in the stock award agreement was unenforceable.
There’s a trend in Ontario courts that has resulted in a lot of termination provisions being deemed unenforceable, says an employment lawyer.
Court of Appeal decision
The Ontario Court of Appeal overturned the trial judge’s decision, on the following basis:
- For 16 years, Battiston expressly agreed to the terms of the agreement.
- Battiston made a conscious decision not to read the agreement despite indicating that he did read it by clicking the box confirming such.
- By misrepresenting his assent to Microsoft, Battiston put himself in a better position than an employee who did not misrepresent, thereby taking advantage of his own wrong.
Accordingly, the Court of Appeal held that the termination clause in the stock award agreement was valid and limited Battiston’s entitlement to unvested stock awards upon the termination of his employment. Battiston was therefore not entitled to any unvested stock awards after the termination of his employment.
A New Brunswick court upheld a termination clause despite being puzzled by parts of it.
Takeaways for employers
This decision will likely come as a great relief to employers in Ontario who have similarly worded clauses in their bonus plans, stock award agreements, and other incentive award agreements.
This case demonstrates that a properly drafted clause limiting an employee’s entitlements upon termination is an employer’s best defense against claims by terminated employees for entitlements over the notice period. Such clauses should be drafted with the utmost care to ensure enforceability.
Ronald Minken is the founding lawyer, managing principal, and mediator at Minken Employment Lawyers in the Greater Toronto Area. Ron gratefully acknowledges Tanya Sambi, an employment lawyer at Minken Employment Lawyers, for her assistance in the preparation of this article. For more information visit www.MinkenEmploymentLawyers.ca.
