Are Wrongfully Dismissed Employees Entitled to Exercise Stock Options and Receive Bonuses?

The Ontario Court of Appeal recently issued a decision concerning an issue that is being litigated with increasing frequency: the entitlement of a wrongfully dismissed employee to exercise stock options, receive bonuses, or take advantage of other aspects of his or her compensation package during the reasonable notice period.

What Happened?

The employee had been employed for 22 years with the employer when he was dismissed from an executive position on January 4, 2016. The termination was to be effective March 31, 2016.

The employee’s compensation package included a base salary, commissions, group benefits, and participation in both a long term incentive plan, which included both restricted share units(“RSUs”) and stock options, and a stock option plan (collectively, the “awards”). 

After unsuccessful attempts to negotiate a severance package, the employer extended the effective termination date from March 31, 2016 to July 8, 2016. It advised the employee that any awards that had already vested could be exercised for up to 30 days after the latter date. Any awards that had not vested as of that date would be “cancelled and forfeited without any consideration.”

The employee brought an action for wrongful dismissal. 

Lower Court Decision

The motion judge found that the employee was entitled to damages, calculated on the basis of 24 months’ reasonable notice, together with all commissions outstanding at the date of termination. The judge also determined the employee’s damages for wrongful dismissal, including the damages for lost opportunity to earn commissions on sales during the reasonable notice period, the pension contributions that would have been made during that period, and the value of benefits lost during the notice period.

Additionally, the motion judge concluded that the employee’s damages for the loss of the awards should be calculated on the basis of what would have probably happened had he remained employed until the end of the notice period. He noted that the employee had exercised his options in the past and that he therefore would likely have done so in this case, had his employment not been terminated.

The motion judge found that the language of the relevant awards was not sufficient to cancel the employee’s entitlement to exercise the awards or to remove his entitlement to damages for their loss. He was therefore entitled to damages for the loss of the right to exercise the RSUs and stock options that would have vested during the reasonable notice period.

The motion judge accepted the employee’s evidence that he would have exercised the options at the “earliest possible opportunity” and calculated damages on the basis that the employee would have sold the shares that vested during the reasonable notice period five months after their vesting date.

The employer appealed.

Court of Appeal Decision

The court stated that the motion judge correctly found as a fact that the awards were an integral part of the employee’s employment, that they would have vested had his employment not been wrongfully terminated, and that he would have exercised the awards, as he had done in the past. 

Ultimately, the court found that the motion judge applied the correct legal principles and arrived at the correct conclusion, stating: 

“[I]n the absence of unambiguous contractual language […], the awards continued to vest during the reasonable notice period. The [employee] was entitled to damages for the loss of his entitlement to exercise his rights.”

As a result, the court dismissed the employer’s appeal.

Get Advice

At Campbell Bader LLP, our Mississauga employment lawyers have been representing non-unionized employees in workplace disputes since 1999. We know that such disputes can be very stressful and can get emotional quickly. We seek to simplify the law so that you understand your options and make informed decisions. We leverage our extensive experience advising employers to provide insightful guidance to employees who are facing challenging circumstances at work. We work hard to protect you.

If you have questions about unfair practices in the workplace, wrongful dismissal, or any other employment matter, contact the Mississauga employment lawyers at Campbell Bader LLP. Our knowledgeable employment lawyers can counsel you on your rights, advise you on your options, and help you create a plan for moving forward. We represent employees in Mississauga and areas west of Toronto. Contact us online or at 905-828-2247 to learn how we can help.