A recent Ontario decision is instructive that employers must make clear attempts to bring to an employee’s attention any contractual terms that limit the employee’s entitlement to bonus or incentive compensation post-dismissal. In Battiston v. Microsoft Canada Inc, 2020 ONSC 4286 [Battiston], the Ontario Superior Court held that an employee was entitled to damages for the value of stock awards that would have vested during the employee’s common law notice period, despite the employer’s use of clear and unambiguous language in the stock award agreement limiting the employee’s entitlement to such amounts.
Battiston involved a wrongful dismissal claim brought by Mr. Battiston, a former employee of Microsoft Canada (“Microsoft”) for nearly 23 years until his employment was terminated by Microsoft without cause on August 10, 2018. In his claim for wrongful dismissal, Mr. Battiston made numerous claims for entitlements during his claimed common law reasonable notice period, including damages for the value of unvested stock awards that would have vested during the notice period, entitling him to sell and receive the principal amount for the sale of those shares. Microsoft provided Mr. Battiston with a Stock Award Agreement each time that stock awards were given to him. Under the terms of the Stock Award Agreements, the stock awards vested in various increments annually over a period of months or years. On the date of his dismissal, Mr. Battiston had 1,057 awarded shares that remained unvested.
The Stock Award Agreements expressly provided that upon termination of employment, Mr. Battiston’s right to any amounts for any unvested shares would terminate, and Mr. Battiston would not be entitled to any amount for the unvested share at the time of termination or during the common law notice period.
The stock awards were provided to Mr. Battiston via email, which also directed him to the relevant Stock Award Agreement. In the email, Mr. Battiston was prompted to indicate that he had read, understood and accepted the Stock Award Agreement. The Court found that Mr. Battiston had received the emails from Microsoft each year he received a stock award, and that he had clicked a button to indicate that he had read, understood and accepted the Stock Award Agreement. However, Mr. Battiston stated that he had not actually read the Stock Award Agreement given the length of the Agreement.
Before the Court, Mr. Battiston claimed entitlement for stock awards that would have vested during his 24-month common law reasonable notice period. Mr. Battiston claimed that the Stock Award Agreement did not unambiguously contract out of his entitlement to the vesting of the stock awards during the reasonable notice period. In the alternative, Mr. Battiston claimed that the termination provisions were unenforceable because they were not sufficiently brought to his attention by Microsoft.
In response, Microsoft argued that the Stock Award Agreement, which Mr. Battiston had been provided, and acknowledged that he read, understood and agreed, clearly contracted out of his entitlement to any amounts for unvested stock awards after his dismissal, and as a result Mr. Battiston was not entitled to any amounts for stock awards that would have vested during the 24 month notice period.
The Court’s Decision
The Court first considered Mr. Battiston’s argument that the Stock Award Agreements did not unambiguously remove his right to amounts for shares that vested during the common law notice period. The general legal test for bonus entitlement and other incentive compensation such as stock awards in Ontario is fairly clear. The law provides that in the event that the bonus or incentive compensation was an integral part of an employee’s compensation package and is compensation the employee would have received if they had worked for their entire reasonable notice period, the employee is entitled to a pro-rated portion of those payments for the duration of their common law reasonable notice period. This is the case unless the employer and employee have expressly and unambiguously contracted out of the employee’s entitlement to that bonus/compensation during the common law notice period. The most common way for employers to contract out of these entitlements is to provide express limiting language within an employment agreement or bonus/compensation plan.
Applying the general test, the Court found that the language of the Stock Award Agreement unambiguously excluded Mr. Battiston’s right to vest his stock awards after he had been terminated without cause, which was the situation facing Mr. Battiston.
Next, the Court considered whether the Stock Award Agreements were unenforceable for lack of notice.
Relying on the 2019 Ontario Court of Appeal decision in Dawe v. The Equitable Life Insurance Company of Canada, the Court found that the termination provisions found in the Stock Award Agreements were “harsh and oppressive” in that they precluded Mr. Battiston’s right to his stock awards vesting following a termination without cause, and found that the terms had not been adequately brought to Mr. Battiston’s attention as a result. The Court accepted Mr. Battiston’s evidence that he was “unaware” of the termination provisions in the Stock Award Agreement, and his argument that the terms were not sufficiently brought to his attention by Microsoft. The Court found that Microsoft’s email communications that accompanied the stock awards did not amount to reasonable measures to draw the oppressive termination provisions to Mr. Battiston’s attention.
As a result, the Court held that the termination provisions in the Stock Award Agreements could not be enforced against Mr. Battiston, and Mr. Battiston was entitled to damages in lieu of the 1,057 shares awarded that would have vested during his 24-month reasonable notice period.
Relatedly, the Court held that the damages for the value of the shares would be assessed based on the value of the shares on the date that the Stock Award Agreements would have vested had Mr. Battiston’s employment not been terminated using the closing market provide for the shares on those dates. This was because the Stock Award Agreements did not provide for a specific time in which the damages for the value of the shares should be assessed.
Battiston indicates that employers must consider more than simply the contractual language when drafting bonus or incentive compensation policies. Employers should ensure that they have practices to clearly bring limiting language to the attention of employees in their policies.
In the past, much of the legal focus surrounding the enforceability of limiting language contained in bonus or incentive compensation has been on the actual language of the policy. While this is still the case, Ontario courts in particular have been increasingly focused on whether that limited language was adequately brought to the attention of the employee in considering its enforceability. As such, employers must take active steps to clearly and demonstrably bring employees’ attention to limiting bonus and incentive compensation language.
The Battiston decision strongly suggests that particularly where an employer uses a lengthy agreement, the employer needs to do more than simply ask the employee to “tick a box” indicating their acceptance of the terms. Employers should, in addition to receiving signed confirmation from employees that they have read, understand and agree to the terms of such plans, consider inserting language that expressly directs the employee’s attention to limiting clauses and/or bold language in agreements to ensure that such language is easily caught when reading the document.
This blog is provided as an information service and summary of workplace legal issues. This information is not intended as legal advice.