UPDATE: In January 2022 we posted the below article concerning stock award programs offered by employers. In Battiston v. Microsoft Canada Inc., 2021 ONCA 727 the Ontario Court of Appeal ruled on whether Battiston was entitled to stock awards following his dismissal. The result was an employer-friendly decision that entailed a take it or leave it approach to equity grants offered by employers. The plaintiff since filed an application with the Supreme Court of Canada for a leave to appeal; it was denied. This means that the Court of Appeal’s judgment stands and further indicates that being unaware of the forfeiture conditions of an equity grant is unlikely to be a valid ground to set them aside if the employee had accepted the terms of the grant without reading the ‘fine print’.
Employee Loses Battle for Unvested Equity
By way of background, Battiston was a 23-year employee of Microsoft. Each year for the last 16 years, he was awarded stock grants. In order to receive the grant, he had to complete an online process for reviewing and agreeing to the terms of the stock award. He received an email, which stated as follows:
Battiston’s practice was to click a box to confirm that he had read, understood and accepted the stock award agreement. However, he did not actually read the Agreement and thus was unaware of the fine print in the Agreement which stipulated that he would forfeit unvested equity awards upon termination. He testified thought he would get the unvested stock if he were terminated.
His employment was terminated without cause. At the time of termination, Microsoft terminated his 1,057 unvested awards as being null and void, relying upon the forfeiture conditions of the stock agreements he signed each year.
At trial, the judge held that even though the Agreement unambiguously excluded his right to vest his stock awards following termination, the forfeiture conditions were “harsh and oppressive”, and he should have been given notice of these terms. Since he accepted the award without reading it, the judge accepted that he was unaware of these termination provisions. Accordingly, he was awarded damages for the lost equity over his notice period .Microsoft appealed this aspect of the trial judge decision.
The Court of Appeal reversed the trial judge decision on deferred equity. The Appeal Court held that the trial judge’s finding that the plaintiff was unaware of the forfeiture conditions could not stand because for 16 years, Battiston expressly agreed to the terms of the agreement; made a conscious decision not to read the terms of the Agreement; and he should not be able to take advantage of his misrepresentation that he read, understood, and accepted the agreement.
Key Takeaway
The Court of Appeal decision is binding law in Ontario. If you agreed to the terms stock award, regardless of whether you read it, you may be bound by its terms. This is true even if this may result in a loss of lucrative, but unvested stock grants upon termination. Therefore, always look at the fine print before clicking. Get legal advice on your equity plan so that you understand the impact of termination or resignation with respect to unvested equity.
In our view
These equity grants are often take-it-or-leave it. If you do not accept the terms, you do not get the award.
Even though the employee earned the grant, they may have to wait for an extended period to realize on it, typically over a long vesting cycle that may stretch out over years. In some cases, the employee may never see that equity if their employment is cut short though no fault of their own.
Deferred compensation is often an integral, if not substantial, part of an employee’s compensation and should form part of the wrongful dismissal damages assessed upon termination. The decision serves to reinforce the imbalance of bargaining power between employers and employees, and for those participating in long term incentive programs, this may serve to substantially reduce the amount of severance compensation they may receive on termination.