Microsoft case highlights need for employers to draw attention to agreement provisions
The Ontario Superior Court of Justice recently released its decision in Battiston v Microsoft Canada Inc, in which the court confirmed that an otherwise enforceable termination provision in a stock option agreement was not enforceable because it had not been specifically brought to the employee’s attention.
As a result, Battiston was awarded damages in lieu of his stock options that would have vested during the more-than-23-month notice period.
Battiston was employed by Microsoft for nearly 23 years until his employment was terminated, without cause, on Aug. 10, 2018. At the time of dismissal, Battiston was entitled to receive a compensation package which included his base salary, merit increases, benefits, cash bonus and stock awards.
The terms of the stock awards were set out in a series of Stock Award Agreements, which Battiston was required to agree to by completing an online acceptance process at the time of each grant. There was some variance between the terms of the annual Stock Award Agreements, but all included a provision which clearly stated that Battiston’s rights in any unvested shares would terminate once he ceased actively providing services to Microsoft.
Specifically, the agreements stated that:
“Awardee’s continuous status as a participant will 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 unless otherwise expressly provided in this Award Agreement or determined by the company, awardee’s right to vest in SAs under the plan, if any, will terminate as of such date and will not be extended by any notice period.”
Battiston confirmed that he had received an email from Microsoft regarding the Stock Award Agreements each year, but that his practice was to click accept without reading it due to the length of the agreements. He assumed that any unvested shares would automatically vest in the event his employment was terminated by the company without cause, and Microsoft never advised him to the contrary.
At trial, Battiston argued that the Stock Award Agreements did not unambiguously oust his entitlement to the vesting of the stock awards during the notice period. In the alternative, he argued that the termination provisions were onerous and unenforceable as Microsoft had not brought the provisions to his attention. Finally, in the further alternative, Battiston argued that the termination provisions were void on the grounds that they breached the Employment Standards Act, 2000 as it disentitled Battiston to vesting of stock awards even during the minimum statutory notice period.
The court found that there was no question that the stock awards were an integral part of Battiston’s compensation package and that, therefore, Battiston was entitled to damages in lieu of the stock awards over the course of the notice period unless the Stock Award Agreements clearly and unambiguously limited Battiston’s entitlement to the stock awards on termination.
Interestingly, the court had no trouble finding that it was “quite clear” that Battiston’s entitlement to vesting of the stock awards would terminate as soon as he was no longer actively providing services to Microsoft as a result of the termination of the relationship for any reason, even if such reason was unlawful. As a result, the Stock Award Agreements were found to unambiguously exclude Battiston’s right to vest his stock awards after his termination date.
However, despite the clear drafting, the court held that the termination provisions could not be upheld because Microsoft had failed to draw Battiston’s attention to the provisions. Simply sending Battiston an email each year asking that he read and agree to the Stock Award Agreements was insufficient given the serious potential impact of the termination clause on Battiston’s entitlements on termination.
As a result, Battiston was entitled to damages in lieu of the 1,057 shares that were still unvested as of his date of termination.
In addition to the stock awards, Battiston was also granted payment of his base salary of $204,262, his annual cash bonus of $12,100, an annual merit increase of 0.7 per cent, $2,000 per year in lieu of health and dental care benefits and up to $6,250 per year for his RRSP contributions, over the 23-month notice period.
This case is not an outlier - there have been many decisions throughout the years (within and outside the employment context) which identify that particularly onerous provisions must be drawn to the attention of the non-drafter to be enforceable. The Battiston case is an important reminder for employers that having a well-drafted contract may not be enough to oust an employee’s default entitlements at common law to have all compensation and benefits continue during the reasonable notice period.
Employers should ensure that harsh or onerous provisions in a contract or plan which impose significant limitations on an employee’s rights are specifically brought to the employee’s attention before they sign. Furthermore, as a best practice, employers should maintain documentary evidence demonstrating that this step was taken.
Employees who have been dismissed should keep in mind that, by default, all of their compensation and benefits are to continue during the notice period. We strongly recommend employees speak with an employment lawyer before accepting any package at the time of dismissal, particularly if that package purports to exclude certain aspects of their total compensation package.
Of course, employees who have such “onerous” provisions brought to their attention should seek legal advice before signing so they understand what they are being asked to agree to and how it could impact them down the road.