Category: Employment Contracts & Policies

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Employment Contracts & Policies

Restricted Stock Units For Employees: What You Should Know

It has become more common for restricted stock units (RSUs) to be an employee benefit in employment contracts. In particular, this has become more common for workers in the technology industry. RSUs can form a significant part of the employee’s total compensation package, and more employers are considering incorporating RSUs in employment offers beyond base salary and other benefits. 

This blog will discuss RSUs and how they may be structured in employment contracts. A recent case, Maynard v Johnson Controls Canada LP, 2023 ONCA 392, involved a terminated employee who claimed that he should receive the RSUs in his employment contract. Those offered RSUs as part of their compensation packages, and employers who want to know how to structure RSU terms so that they will be upheld in court will benefit from this post.

What are restricted stock units?

Since RSUs have become a significant component in an employee’s compensation package, especially for many tech workers, it is important to understand how they operate. 

RSUs are a form of compensation offered to employees. Employees are given company stocks that will vest sometime in the future if they meet certain conditions. If you meet the conditions, then the stocks will be vested, and the employee can sell or keep the stocks. Depending on the terms of the contract, the RSUs may not vest upon termination. 

With other stock options, the employee can buy the company’s stock at a set price. This is different from RSUs, where an employee would be given the stocks, which are vested at a later time. Even if a stock price decreases, RSUs also have an underlying value. 

There may also be some taxes that apply once the RSUs vest. 

What conditions may apply?

Common conditions for the vesting of RSUs include working for the company for a set period (typically a long-term commitment) or if a particular goal is reached, such as completing a specific project, or if the company goes public. 

For time-based vesting conditions, there may be a schedule that vests a portion of the RSUs after a set period. Then the remaining portions will be vested in later years. 

Why offer restricted stock units?

Employers may use RSUs to incentivize employees to stay with the company and retain talent. RSUs also incentivize employees to build up the company’s value through their work, as their stocks would be more valuable. 

Court finds tech employee entitled to RSUs as forfeiture terms not provided by employer

In the Maynard case, the employee began working for the employer in 2004. He was terminated without cause in 2018. 

The employee’s compensation package was changed in 2014 to include a base salary, benefits, and a bonus and incentive plan through RSUs. 

The employer had a “Share and Incentive Plan” policy, which dictated how the RSUs would be regulated. The Plan included a forfeiture provision that specified that if the employee were terminated without cause, the unvested RSUs would be forfeited and returned to the company automatically at the termination date. The employer also had the discretion to waive this automatic forfeiture of the RSUs if they chose to do so. However, there was evidence that the employee never received a copy of the Plan, which was never brought to his attention. He only learned of the Plan during litigation. 

At termination, the employee received compensation for pay in lieu of notice for 8 weeks, as set out in the Ontario Employment Standards Act. Also, the employer provided that his health benefits would continue for 8 weeks. In addition, he received $225,135.12 for 56 weeks of pay, plus an extension to his health benefits for 56 weeks. To receive this, the employee was asked to sign a release. 

In 2016 and 2017, the employee received RSUs valued at $118,335.95. These were not yet vested. According to the termination letter, the employer advised the employee that he would not receive the value of the RSUs, and his termination package was only based on his base salary, even though the RSUs made up approximately 37% of his total compensation. The release stipulated that the employee would waive rights to compensation for any bonuses, profit-sharing, or other entitlements, which included the RSUs. 

The employee did not sign the release. 

The court found that the facts differed from the case, Battiston v. Microsoft Canada Inc., 2021 ONCA 727, in which the Court of Appeal reversed the lower court finding that the employee was entitled to stock awards in his contract after termination. The Court of Appeal in Battiston ruled that the employee did receive notice of the terms, as each year for 16 years, when he accepted his stock award, he was provided with a drop-down window with the terms of the plan, and he was required to certify that he had read the terms. Even though the employee claimed he did not read the terms, the Court of Appeal found that he deliberately made the decision not to read the terms, and he was making a misrepresentation when he checked off the box that confirmed he had read the terms. 

In the Maynard case, there was evidence that the employee never even received a copy of the Plan that regulated the RSUs. Therefore, the court did not follow the Battiston case and decided that the employee was to receive the value of the RSUs even though he was terminated. 

The employer appealed the decision in Maynard, which was upheld in the Court of Appeal. 

Key Takeaways 

As the case law shows, any terms concerning the RSUs must be brought to the employee’s attention. If the terms are set out in a plan outside the main employment contract, the employer must provide a copy to the employee. If the terms are provided to the employee, more is needed for them to say that they did not read the terms if they affirmed that they had read them. 

Contact Haynes Law Firm in Toronto for Advice on RSUs in Employment Contracts

As RSUs become more popular in employment contracts, especially for tech workers, it is important to understand how they work. There may be terms in the employment contracts or related policies that set out the terms for RSUs. Our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from employment contracts or termination. For employees, our goal is to ensure that they understand their rights and receive maximum compensation upon termination. Haynes Law Firm also assists employers in avoiding liabilities that may arise from termination packages that are not in line with legislation or case law. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.

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Employment Contracts & Policies

Frustrated? Your Employment Contract Could Be Too

An employment contract, unsurprisingly, is a type of contract. As a result, many of the regular principles of contract law apply in the employment law context too.

We regularly write about the implications of terminating an employee, which normally involves giving reasonable notice or making a payment in lieu of such notice. But can an employer terminate an employee without providing certain termination entitlements if the employment contract has become frustrated? 

This article looks at this question with reference to the recent decision of the Ontario Superior Court of Justice in Croke v VuPoint Systems Ltd. In this case, the employer terminated the plaintiff’s employment with two weeks’ notice after he refused to comply with its mandatory COVID-19 vaccination policy. 

What is frustration of contract?

Frustration of a contract may occur when a situation arises in which the parties made no provision for in the contract, which renders the performance of the contract a thing which is radically different from that which was previously undertaken under the contract. Performance of the contract, as originally agreed, needs to be more or less impossible due to the event that has happened.

When such an event occurs without the fault of either party, a court may be called upon to relieve them of the bargain they previously reached in the contract. 

What are the implications of a frustrated contract?

The legal effect of a frustrated contract is that the parties can treat the contract as being at an end, with no obligation to continue the contract and no entitlement to either party as a result of the end of the contract. 

In an employment law context, an employer may be entitled to end the contract without providing the employee with common law notice.

Defendant employer was required to institute a mandatory vaccination policy

Turning to the recent decision, the defendant employed the plaintiff as a systems technician starting in 2014. The defendant is a federally regulated employer, subject to the provisions of the Canada Labour Code, that provides services predominately to Bell Canada. The latter provided the defendant with more than 99% of their income.

In September 2021, Bell told the defendant that all installers would need two doses of a COVID-19 vaccine. This caused the defendant to institute a mandatory vaccine policy, which said that unvaccinated installers would be prohibited from performing work for certain customers and may not receive assignments.

Plaintiff refused to become vaccinated and was terminated

The defendant terminated the plaintiff in late September, effective October 12. He was given two weeks’ notice and severance pay of about $2,400. The plaintiff told his supervisor he was unprepared to disclose his vaccination status. He also said that he would never be vaccinated.

The plaintiff brought proceedings for wrongful dismissal. He argued that his employer failed to warn him of the consequences of not complying with the mandatory vaccination policy. He also contended that the employer could not establish that the employment contract was impossible to perform. 

The defendant responded that it was no one’s fault that the policy had come into effect, which required people entering the homes of Bell’s customers to be vaccinated, meaning the plaintiff was unable to continue to perform his duties. They had no other work for the plaintiff to do, so argued that his employment ended because the contract had been frustrated.

Plaintiff was warned that his employment would be terminated

Justice Pollak disagreed with the plaintiff’s claim that he was not told that he would be terminated if he did not comply with the mandatory vaccination policy. While the policy did not specifically mention termination, the evidence showed that he knew of the policy, only provided services to Bell and had told his employer that he would never become vaccinated. He was also told that his employment would be terminated in late September.

Court likened the case to a recent labour arbitration decision

Her Honour cited the 2022 labour arbitration decision of Fraser Health Authority v Hospital Employees’ Union, which she found was analogous to the plaintiff’s claim. In that case, the arbitrator decided that the employment contract of a unionized hospital healthcare assistant had been frustrated when she refused to comply with a mandatory COVID-19 vaccination policy. The employer was required to institute the policy under a provincial mandate.

Justice Pollak summarized the defendant’s position:

“The supervening event is Bell’s implementation of a mandatory vaccination condition on all subcontractors in order for those subcontractors to be eligible to perform installation services for Bell. [The defendant] submits that neither party could have possibly foreseen in 2014, when the parties entered into the employment contract, that an unprecedented global pandemic would occur that would cause Bell, to implement a policy requiring all [the defendant’s] installers to become vaccinated against said disease, failing which they would not be able to work for Bell.”

Radical change resulted in the frustration of the employment contract

Her Honour agreed that the vaccination policy was an unforeseen event not contemplated when the parties entered the contract. Neither party had a default, with the defendant contractually required to comply with Bell’s policies. The plaintiff’s inability to perform his duties constituted a radical change that frustrated the employment contract. Justice Pollak found that the defendant did not need to modify the contract to ensure he could continue to work and that the current situation was radically different from what the parties had intended in 2014.

The court dismissed the plaintiff’s wrongful dismissal claim.

Contact Haynes Law Firm in Toronto for Guidance on Employee Termination

The Haynes Law Firm helps both employers and employees deal with the termination process, reducing the chances of litigation and advocating for your rights. We also draft employment contracts, which are crucial documents, especially in the later event of a dispute. For all your employment law needs, contact us online or call us at 416.593.2731.

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Employee Terminations Employment Contracts & Policies

When The Substratum Changes … So May The Employment Contract

Sometimes an employment contract becomes dated. This could be when an employee starts a new job and signs a contract, then stays with the employer for many years, changing positions within the company but never signing a new contract. This can present issues – the terms agreed many years ago may no longer be appropriate to govern the employment relationship as it exists now. 

The courts have developed the “changed substratum doctrine” to deal with the situation where an old, written employment contract restricts an employee’s common law entitlements. This article looks at the doctrine and a recent decision of the Court of Appeal for Ontario in which an employee sought common law reasonable notice after being terminated without cause, despite his contract setting out the required notice period.

Notice entitlements upon termination without cause

An employee terminated without cause is normally entitled to reasonable notice (or payment in lieu of such notice) to search for and locate alternate employment. While a minimum period of notice based on the length of the period of employment is required by legislation, employees may be entitled to a longer period of notice under the common law. Please see our introductory article on this topic.

Employment contracts sometimes seek to remove an employee’s entitlement to common law notice, either by stating that an employee is only entitled to the minimum notice as required by legislation or is entitled to some other fixed period of notice. These types of provisions may or may not be enforceable.

The changed substratum doctrine may justify ousting the termination provisions in an employment contract

The changed substratum doctrine applies to historical written employment contracts. It limits when an employee’s common law entitlements can be restricted by such a contract, reflecting the fact that an employee’s duties and responsibilities may have expanded since the contract was agreed upon. In other words, the substratum of the contract may have been eroded, making it inappropriate to apply its terms.

As the court said in MacGregor v National Home Services:

“The doctrine provides that if an employee enters into an employment contract that specifies the notice period for a dismissal, the contractual notice period is not enforceable if over the course of employment, the important terms of the agreement concerning the employee’s responsibilities and status has significantly changed… with promotions and greater attendant responsibilities, the substratum of the original employment contract has changed, and the notice provisions in the original employment contract should be nullified.”

The changed substratum doctrine may not apply in a number of circumstances 

In order for the doctrine to potentially be applied by the court, the employee’s responsibility and status need to have changed significantly since the contract was entered such that the court can find that the parties would not have intended for its provisions to continue to apply.

The changed substratum doctrine may not apply where the contract states that it continues to apply even if the employee’s position and status change. The contract may also apply if the parties ratify its continued operation when a significant change in duties occurs.

Plaintiff sought common law reasonable notice, relying on the changed substratum doctrine 

In Celestini v Shoplogix Inc., the plaintiff employee’s 2005 employment contract provided that the employer would only be required to pay his base salary and health insurance for 12 months, plus a pro-rated bonus payment, in the event of termination without cause.

The plaintiff was terminated without cause in 2017. He sued his employer seeking damages for wrongful dismissal. He argued that this termination provision was no longer enforceable because his duties had materially changed. 

In 2005, the plaintiff was the company’s chief technology officer, who also transferred product and corporate knowledge within the organization. In 2008, the parties entered into an incentive compensation agreement that increased his compensation. The plaintiff’s workload also increased, with new responsibilities including sales, travel, infrastructure, and financing.

The substratum of the plaintiff’s employment contract had disappeared

The motion judge agreed with the plaintiff that his duties had fundamentally changed during his employment. The new responsibilities, consistent with the increased compensation, exceeded simply incremental changes to his role that started in 2005. Even though his job title had remained the same, the judge decided that the substratum of the employment contract had disappeared. 

The judge noted that the employer failed to obtain an acknowledgement that the contract remained applicable. As a result, its termination provisions were unenforceable. The judge decided upon a common law reasonable notice period of 18 months and added damages for the plaintiff’s car allowance, life insurance entitlements and bonus during the extra 6-month period.

Court of Appeal agreed that the changed substratum doctrine applied

The employer appealed, arguing that the doctrine should not apply because the plaintiff remained a senior executive and that changes to his responsibilities were only incremental. The Court of Appeal rejected these arguments.

The Court explained that applying the doctrine does not require promotion or a job title change. A fundamental expansion in the employee’s duties could happen without these things. Furthermore, the Court noted that the motion judge made an open factual finding based on the evidence, namely that the plaintiff’s duties had substantially changed.

As a result, the Court dismissed the employer’s appeal and awarded the plaintiff approximately $450,000.

Contact Haynes Law Firm in Toronto for Guidance on Employee Termination

The Haynes Law Firm helps both employers and employees deal with the termination process. An experienced employment lawyer, Paulette Haynes, will guide your organization through the situation and advise you on employee entitlements to minimize the risk of expensive litigation. Paulette is also a fierce advocate for employees, helping them to understand their rights on termination in order to level the playing field. Please contact us online or call us at 416.593.2731.

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Employment Contracts & Policies Employment Legislation

New Guidance On Electronic Monitoring Of Employees

We recently reported on the Ontario requirements relating to the electronic monitoring of employees, newly introduced under the Working for Workers Act, 2022. Designed to address employee privacy issues, the requirements force certain employers to prepare a written policy on the electronic monitoring of employees. 

While the legislation contains some detail, the Ontario Ministry of Labour, Immigration, Training and Skills Development has recently issued guidance on electronic monitoring policies, providing additional information.

Larger employers must have an electronic monitoring policy

The Working for Workers Act, 2022 amended the Employment Standards Act, 2000 to require employers that employ 25 or more employees (as of January 1 of any year) to have a written policy with respect to the electronic monitoring of employees. 

According to the Employment Standards Act, the policy, which must be in place for all employees in Ontario, needs to contain: 

  • Whether the employer electronically monitors employees;
    • If so, the policy must then describe how and in what circumstances the employer may electronically monitor employees, as well as the purposes for which information obtained through electronic monitoring may be used by the employer; 
  • The date the policy was prepared and the date any changes were made to the policy; and
  • Such other information as may be prescribed under the regulations of the Employment Standards Act.

Deadlines for creating electronic monitoring policy

Usually, the policy must be in place before March 1. However, as a transitional measure for 2022, employers that met the 25-employee threshold as of January 1, 2022, have until October 11, 2022, to have a written policy in place. 

Finally, an employer must provide a copy of the policy to each employee within 30 days from the day the employer is required to have the policy in place or, if an existing policy is changed, within 30 days of the changes being made. Employers need to give a new employee a copy within 30 days of them becoming an employee (provided this is later than 30 days later than the day the employer needs to have the policy in place).

Provincial government guidance on electronic monitoring policies

The new guidance issued by the Ontario government forms part of “Your Guide to the Employment Standards Act”, which is a source of information about key sections of the Employment Standards Act. It is not a legal document and is for information and assistance only. A few of the key points in the guidance are mentioned below.

Threshold of 25 or more employees

An electronic monitoring policy is required if the employer employs 25 or more employees in Ontario on January 1 of any year. The guidance instructs employers to count the individual number of employees it employs on January 1.

Counting the number of employees

The number of “full-time equivalent” workers is irrelevant when counting the number of employees. Additionally, it does not matter if employees are split across multiple worksites or locations. So long as 25 employees are employed in total across all locations, an electronic monitoring policy is required, even if less than 25 employees are located at individual sites.

If multiple employers are treated as one employer for the purposes of the Employment Standards Act, then all of those employers’ employees in Ontario are included in the count.

If the employer starts the calendar year with less than 25 employees but reaches this threshold later that year, they do not need to create an electronic monitoring policy until the next calendar year. On the other hand, an employer is not relieved from being required to have a policy if their employee count drops below 25 during the year. They are only absolved of this requirement if their count remains below 25 on January 1 of the following calendar year.

Content of the electronic monitoring policy

According to the government’s guidance document, employers can choose to have a single electronic monitoring policy for all employees or different policies for various groups of employees.

“Electronic monitoring” includes all forms of employee monitoring that is done electronically. Electronic monitoring policies are not limited to devices issued by the employer or monitoring at the workplace.

The government’s guidance contains some practical examples, including that of an employer who tracks an employee’s delivery vehicle using GPS. In such a situation, the employer’s electronic monitoring policy must not only state that the employer electronically monitors its employees but would also need to include the following information:

  • How the employer may electronically monitor its employees – for example, by tracking the employee’s delivery vehicles through GPS;
  • The circumstances in which the employer may monitor its employees – for example, by tracking the employee’s movement in the vehicle for all working hours on every workday; and
  • The purposes for which the information gathered by the employer may be used – for example, to help set delivery routes, to ensure employees do not deviate from their delivery route without authorization, and to discipline employees who are untruthful about their whereabouts during working hours.

No new privacy rights and limitations on investigations

The provincial government’s guidance confirms that these new sections of the Employment Standards Act do not create a right for employees not to be electronically monitored at work. In other words, employees do not receive any new private rights under the amended Act. 

Additionally, the Employment Standards Act does not limit an employer’s ability to use the information obtained through electronic monitoring to the purposes stated in the policy. 

Employees are also limited in the complaints they can file about their employer’s electronic monitoring policy to the Ministry of Labour, Immigration, Training and Skills Development. Employees may only file complaints with the Ministry about an employer’s alleged failure to provide the employee with a copy of the policy within the required timeframe.

Contact Haynes Law Firm in Toronto for Advice on Electronic Monitoring Policies

Workplace law in Ontario is constantly changing. As such, it is essential to get advice from a seasoned employment lawyer. Haynes Law Firm can guide you through these developing areas of the law. We can help draft employment policies, including electronic monitoring policies, or review existing policies to ensure they comply with all legal requirements. Our firm will happily assist you to meet the electronic monitoring policy deadline of October 11, 2022.

Haynes Law Firm helps employers and employees throughout Ontario achieve practical solutions to legal issues and conflict management in employment law and civil litigation. Contact us online or call us at 416-593-2731.