But employers must be careful since any ambiguity will be read in favour of employees
Imagine you are an employer with a stock options plan in place. Each year, employees receive an email asking them to confirm their acceptance and acknowledgment of the plan.
The email expressly directs the employees 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."
In addition, the plan clearly states that unvested awards would be forfeited on termination of employment, whether with or without cause.
If an employee accepts the award online, but says they did not actually read the terms, are they then entitled to receive the unvested awards upon termination? Or is the fact that you provided notice to the employee, which the employee accepted, sufficient?
Interestingly, the Ontario Superior Court of Justice in Battiston v Microsoft Canada Inc. held that despite clear language ousting the employee's rights, the employer had failed to bring the "harsh and oppressive" terms to the employee's attention and therefore the plan could not be relied upon to limit the employee's entitlements.
As a result, many of us concluded that in addition to absolutely clear wording, an employer would have to explicitly bring such clauses to the employee’s attention in order to avoid having to pay out. However, Microsoft appealed and won. The Ontario Court of Appeal found that the trial judge had erred in finding notice had not been provided to the employee.
Before we review the decisions, it is important to remember that employees are, by default, entitled to all compensation and benefits during the entirety of the common law notice period upon termination -- even if the notice period is 24 months.
Here's the caveat: if there is a contract or policy explicitly excluding such entitlement, then the employee's rights can be limited.
Battiston: The lower court and appeal decisions
In Battiston, the Ontario Superior Court of Justice awarded the employee damages for the stock options that were scheduled to vest during the notice period because the employer failed to bring the limitations in the stock option plan after termination to the employee’s attention at the time he accepted the terms of the stock awards.
The court found the termination provisions in the stock award agreements to be “harsh and oppressive” since they barred the employee's right to have unvested stock awards vest if he had been terminated without cause. As a result, the court ruled “reasonable measures must be taken to draw harsh and oppressive terms to the attention of the employee.”
In short, the court found that having a well-drafted and legally compliant contractual provision was not sufficient and that the terms must be brought to the employee’s attention.
The Ontario Court of Appeal found that the trial judge erred by concluding that the termination provisions were not brought to the employee's attention by Microsoft and that "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 [the employee’s] attention."
The court held:
"[9] This finding cannot stand because the trial judge’s conclusion that the notice provisions were not brought to the respondent’s attention fails to address the following facts:
1) For 16 years the respondent expressly agreed to the terms of the agreement.
2) The respondent made a conscious decision not to read the agreement despite indicating that he did read it by clicking the box confirming such.
3) By misrepresenting his assent to the appellant, he put himself in a better position than an employee who did not misrepresent, thereby taking advantage of his own wrong: see Berlingieri v. DeSantis (1980), 1980 CanLII 1823 (ON CA), 31 O.R. (2d) 1 (C.A.) at para. 18.
[10] The trial judge erred by finding the respondent received no notice."
Key takeaways
While we do not yet know whether this decision will be appealed, the current state of the law in Ontario is that providing notice of the provisions is sufficient. If the employee agrees to the terms and later on says "I simply clicked ‘accept’ but did not read the terms", then that is not going to render a stock option plan unenforceable, as long it is otherwise unambiguous.
Although this is a welcome decision for employers, they must be careful since any ambiguity will be read in favour of the employee.
To minimize potential liability, employers would be wise to draft and implement stock options and related plans that are clear and unambiguous and provide adequate notice of such plans to employees.
The following are some best practices for employers:
Clearly define the employee’s rights upon the end of employment.
- Clearly define termination of employment and related terms so that such provisions are not interpreted as defining "termination" as including the reasonable notice period.
- Clearly outline the expiry date(s) for an employee’s right to exercise vested options following the end of employment.
- Ensure that employees review and agree to the terms and conditions of such plans and that you maintain records of their acceptance.
- Seek legal advice to ensure your plans are properly drafted and implemented.
