The Ontario Court of Appeal has released an important decision addressing termination clauses, prior service following a business acquisition, and an employee’s entitlement to restricted stock units (“RSUs”) following dismissal.

In Wigdor v. Facebook Canada Ltd., the Court upheld a finding that the employment agreement’s termination provisions violated the Employment Standards Act, 2000 (ESA). It also concluded that provisions purporting to stop RSU vesting immediately upon termination contravened the ESA and could not eliminate the employee’s common law entitlement to damages for RSUs that would have vested during reasonable notice.

The employee ultimately received an additional award of approximately US$4.7 million, representing RSUs that would have vested during his 10-month reasonable notice period.

Employee Joined Purchaser Following Sale of Business

The employee founded a technology consulting company in 2011. In 2020, a large technology corporation purchased the business as part of a transaction intended to integrate the employee and his team into its workforce.

The employee subsequently became a director with the purchaser’s Canadian subsidiary. His compensation included salary, benefits and significant equity compensation, including RSUs that vested over several years.

His employment was terminated in December 2023. The termination letter stated that he would receive minimum ESA entitlements, including eight weeks of termination pay and 12.5 weeks of statutory severance pay. Additional payments were offered if he signed a release, which he declined because it would have prevented him from disputing the forfeiture of unvested RSUs.

Termination Clause Failed to Properly Account for Prior Service

One issue concerned the employee’s years of service before the acquisition. Section 9 of the ESA addresses continuity of employment when a business is sold and an employee continues working for the purchaser. In those circumstances, prior employment with the seller may have to be included when determining the employee’s length of employment for ESA purposes.

Although the employment agreement stated that prior service would be recognized for determining minimum ESA entitlements, another provision stated that during the first three months of employment with the purchaser, the employee could be dismissed on two weeks’ notice or base pay in lieu.

ESA Compliance Language Could Not Save Termination Clause

The Court agreed that this provision violated the ESA. Because the employee’s prior service had to be counted, he was already entitled from the outset to substantially more than two weeks of base pay.

General language promising ESA compliance could not cure the more specific provision that provided an entitlement below the statutory minimum. The termination clause was therefore unenforceable, and the employee remained entitled to common law reasonable notice.

Legal Advice Did Not Change the Contractual Standard

The employers also pointed to the employee’s sophistication and the fact that he had legal representation during the transaction and negotiation of the employment agreement.

The Court rejected the suggestion that receiving legal advice reduced the level of clarity required in an employment contract.

It reiterated that an employee’s sophistication or access to independent legal advice cannot override termination language that fails to comply with the ESA.

What Happens to RSUs During the Notice Period?

The employee’s appeal raised a separate issue concerning approximately US$4.7 million in RSUs that would have vested during his 10-month common law notice period.

The RSU agreements generally provided that unvested RSUs would be forfeited upon termination. One agreement expressly stated that vesting would not continue during any contractual, statutory, regulatory or common law notice period. Later agreements contained similar language, subject to certain references to applicable legislation.

The key question was whether those provisions could lawfully prevent RSUs from vesting during the employee’s statutory notice period and, in turn, eliminate his common law entitlement to damages for lost RSUs.

Sections 60 and 61 of the ESA Must Be Read Together

The Court focused on sections 60 and 61 of the ESA. Section 60 provides that during the statutory notice period an employer cannot reduce an employee’s wage rate or alter another term or condition of employment.

Section 61 permits an employer to provide pay in lieu of notice but requires a lump sum equal to the amount the employee would have received under section 60 had working notice been provided.

The Court held that the provisions must be read together. Pay in lieu must therefore be calculated on the basis that the employee’s terms and conditions of employment would have remained unchanged throughout the statutory notice period. The objective is to place employees in the same financial position whether they receive working notice or pay in lieu.

RSU Vesting Was a Term or Condition of Employment

The employee’s RSUs formed part of his compensation arrangement. They vested quarterly and, once vested, automatically converted into shares. The evidence also described RSUs as an element of employee compensation intended to reward continued service and encourage retention.

The Court concluded that ongoing RSU vesting was a “term or condition of employment” under section 60 of the ESA. Accordingly, contractual language that stopped RSU vesting immediately upon termination altered a term or condition of employment during the statutory notice period and was inconsistent with the ESA.

The Court did not decide whether equity-based compensation generally constitutes “wages” under the ESA. It found that issue unnecessary because the RSUs were captured as a term or condition of employment.

Court Awards Approximately US$4.7 Million in Lost RSUs

There was no dispute that 9,405 RSUs would have vested during the employee’s 10-month reasonable notice period. Their value was approximately US$4.71 million. Because the RSU provisions violated the ESA, they could not validly remove the employee’s common law rights. The Court therefore increased his damages by US$4,711,647.29.

The employee also sought punitive damages because his statutory payments were not made until approximately 10 months after dismissal. The Court upheld the lower court’s refusal to award them, finding no reviewable error in that decision.

Broader Implications for Ontario Employment Agreements

The decision addresses several recurring issues in Ontario employment law. Termination provisions must comply with ESA minimum standards when the contract is entered into. Actual compliance at the time of termination does not repair language that was invalid from the outset.

The case also demonstrates that equity compensation, bonuses and similar incentives may need to be considered when assessing termination entitlements. Where a compensation plan attempts to end an entitlement immediately upon dismissal, its interaction with statutory notice requirements may affect enforceability.

Finally, where employees continue working for a purchaser following a sale of business, prior service can materially affect their ESA termination and severance entitlements.

Contact Haynes Law Firm in Toronto for Experienced Representation in Termination and Compensation Disputes

Led by leading employment lawyer Paulette Haynes, Haynes Law Firm advises employers and employees throughout Toronto and the Greater Toronto Area regarding wrongful dismissal, employment contracts, termination pay, severance pay, reasonable notice, RSUs, bonuses, stock-based compensation and ESA compliance. To schedule a consultation on your termination of employment issue, contact us online or call (416) 593-2731.