Ontario Court of Appeal Limits Enforceability of Equity Plan Termination Clauses
Ontario employers using RSU and equity compensation plans must review termination provisions, as a new appellate ruling undermines the enforceability of clauses that limit or forfeit equity upon dismissal.
The Ontario Court of Appeal recently issued a decision in a wrongful dismissal case that directly impacts equity compensation plans. Although the dispute arose from a termination, the court’s reasoning casts doubt on the validity of termination provisions embedded in restricted stock unit (RSU) and other equity plans that restrict or eliminate equity awards when employment ends. The ruling suggests such clauses may be unenforceable if they conflict with employment standards or are not clearly communicated. Employers with operations or employees in Ontario should audit their equity plan documents, particularly termination and forfeiture clauses, and consider revisions to ensure compliance with the decision’s framework.