RSU termination clauses under scrutiny again

Ontario courts may be increasingly willing to scrutinize equity compensation clauses using the same strict ESA-based analysis applied to termination clauses, rather than treating equity plans as a separate category.

A recent Ontario Superior Court decision has added a new layer to the evolving law around equity compensation on termination, and it may signal a different analytical approach than the one taken in Wigdor v. Facebook Canada Ltd., which is currently under appeal.

In Liggett v. Veeva Software Systems, Inc. and Veeva Systems Inc., Justice Des Rosiers was asked to consider whether restrictive vesting language in a stock option and restricted share unit (RSU) plan successfully disentitled an employee from equity compensation during the notice period. The court found that it did not.

RSU, stock option entitlement upon termination

The employer relied on plan language stating that unvested options and RSUs would immediately expire when the employee’s “Service” ended, defined as the date the employee was no longer actively providing services, regardless of whether the termination was later found to be unlawful.

The plan also expressly stated that vesting would not be extended by any statutory notice period, garden leave, or similar period, and gave the company broad discretion to decide when service ended.

On its face, this language appeared to be designed to close the door on any equity entitlement after termination. The court disagreed.

Court found RSU clauses invalid

Justice Des Rosiers identified several fatal problems with the plan language.

ESA non-compliance voids the clause: The court held that tying the loss of equity entitlements to the date the employee stopped actively working violated the Ontario Employment Standards Act 2000 (ESA). Under the ESA, termination does not legally occur until the minimum statutory notice period has expired.

In Ontario, any clause that treats the last active working day as the termination date is inconsistent with the ESA and therefore unenforceable.

This mirrors the long-standing principle that ESA violations invalidate termination-related clauses, even where the employee ultimately receives more than the statutory minimums.

“Actively providing services” fails under Matthews: The court also relied on the Supreme Court of Canada’s decision in Matthews v. Ocean Nutrition. As in Matthews, the language attempted to disentitle the employee from compensation that would otherwise have accrued during the notice period by defining termination as the last day of active work.

The court confirmed that this approach does not remove an employee’s common law entitlement to compensation that would have been earned during the notice period, including equity-based compensation, unless the language does so clearly and lawfully.

Discretion without guardrails creates ambiguity: The plan granted the employer exclusive discretion to decide when an employee stopped providing services, including whether they might still be considered active during a leave of absence.

The court found this problematic. Discretionary authority, without clear guidelines for how that discretion will be exercised, creates uncertainty and ambiguity for employees. Ambiguous compensation clauses are interpreted in favour of the employee.

The contract was overly complex and confusing: Finally, the court took issue with the structure and readability of the plan itself. The applicable provisions depended on cross-referencing multiple sections and substituting jurisdiction-specific language.

The court emphasized that employees should not be required to piece together complex documents to understand what they are giving up on termination.

All termination clauses treated the same way

Justice Des Rosiers summarized the governing principle succinctly:

Employers must clearly and lawfully explain what happens to equity compensation on termination. Language that violates the ESA, or that misleads employees about their rights during the notice period, will not be enforced.

Importantly, the court confirmed that the same analytical framework applies to RSU and equity clauses as applies to termination clauses generally.

This decision appears to take a different approach than the one adopted in Wigdor v. Facebook Canada Ltd., 2025 ONSC 4861, where the court enforced equity plan language that limited post-termination entitlements, favouring the employer. That decision is currently under appeal, with the Ontario Court of Appeal scheduled to hear the matter on April 23, 2026.

Liggett suggests that Ontario courts may be increasingly willing to scrutinize equity compensation clauses using the same strict ESA-based analysis applied to termination clauses, rather than treating equity plans as a separate category as was done in Wigdor v. Facebook Canada Ltd.

As Liggett v. Veeva was not being appealed, it now stands as binding trial-level authority in Ontario.

Practical takeaways for employers on equity compensation clauses

• RSU and stock option plans must comply with the ESA, not just contract law.
• Defining termination as the last active working day is risky.
• Discretionary language must be constrained and transparent.
• Complex, cross-referenced plans increase enforceability risk.

With the Wigdor appeal pending, Ontario law on equity compensation at termination remains in flux. For now, Liggett reinforces a key message: equity clauses are not immune from the same scrutiny that applies to termination clauses.

Further appellate guidance is expected, but employers would be well advised to review their equity plans now rather than wait for clarity after the fact.

Ronald S. Minken is a senior lawyer and mediator at Minken Employment Lawyers, an employment law boutique in the Greater Toronto Area. Tanya (Tejpreet) Sambi is a lawyer at Minken Employment Lawyers.