In the recent Wigdor v Facebook Canada Ltd. and Meta Platforms, Inc., 2025 ONSC 4051 decision (the “Decision”), which has not yet been reported, the Ontario Superior Court of Justice upheld the enforceability of restricted stock unit (“RSU”) forfeiture provisions in several RSU award agreements, despite finding that the termination clause in the employee’s employment agreement violated the Employment Standards Act, 2000 (the "ESA").
From an employer perspective, the Decision helpfully confirms that RSUs and stock options are not “wages” for the purposes of the ESA, and that the invalidity of a termination provision in an employment agreement may not impact otherwise enforceable forfeiture provisions in a separate award agreement. The key aspects of the Decision are summarized below, along with our employer takeaways.
Facts
In 2011, the Applicant founded Chatham Inc., a technology consulting services firm. A division of that company, Chatham Labs Inc., was purchased by Meta Platforms (“Meta”) pursuant to a share transaction in August, 2020. Meta is the US parent company of the Respondent. In conjunction with this transaction, the Applicant’s employment was transferred to the Respondent in September, 2020.
The Applicant’s employment agreement with the Respondent (the “Employment Agreement”) recognized his years of service prior to the transaction “only for the purpose of determining any minimum required entitlements” under the ESA.
Throughout his employment with the Respondent, the Applicant received RSUs pursuant to Meta’s 2012 Equity Incentive Plan and RSU agreements for 2020 and for 2021, 2022, and 2023 (the “2020 RSU Agreement” and the “2021-2023 RSU Agreements”, referred to together as the “RSU Agreements”).
Notably, the RSU Agreements contained the following forfeiture provisions:
2020 RSU Agreement:
…if Participant is Terminated by his/her employer for any reason or if Participant’s Termination is due to his/her voluntary resignation, all unvested RSUs shall be forfeited as of the date that is the earlier of: (i) the date Participant’s employment is terminated and (ii) the date Participant is no longer actively providing services to the Company or any of its Subsidiaries (regardless of the reason for such Termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any), and no vesting shall continue during any notice period in relation to his/her Termination, whether specified under contract or statutory, regulatory or common law… [Emphasis added.]
2021-2023 RSU Agreements:
If Participant’s service Terminates for any reason, all unvested RSUs shall be forfeited to the Company forthwith . . . if Participant is an Employee of the Company or a Parent, Subsidiary or Affiliate, then Participant's service Terminates when Participant has ceased to provide services to his/her Employer, whether such cessation is initiated by Participant; by his/her Employer, with or without cause, and whether or not later found to be invalid or unlawful . . . For the avoidance of doubt, unless explicitly required by applicable legislation, the date on which a Termination of Employment occurs and all unvested RSUs are forfeited will not be extended by any period during which notice, pay in lieu of notice or related payments or damages are provided or required to be provided under local law (including, without limitation, statute, contract, regulatory law, and/or common or civil law) . . . if applicable employment standards legislation explicitly requires continued entitlement to vesting during a statutory notice period, Participant’s right to vest in the RSUs under the Plan, if any, will terminate effective as of the last day of Participant’s minimum statutory notice period . . . [Emphasis added.]
The Applicant was terminated on December 8, 2023, and offered a separation package which provided for payment in lieu of notice, in amounts in excess of his statutory minimum entitlements in exchange for a release. The Applicant refused to sign the release because it included a term which precluded him from disputing the forfeiture of his unvested RSUs, which were valued in the millions of dollars. The Applicant alleged that in response, the Respondent withheld his statutory termination payments. The Respondent paid the statutory minimum amounts approximately ten (10) months after litigation began, stating that its failure to do so was an administrative error.
Applicant’s Position
The Applicant sought an order as to the validity of the Employment Agreement, the Applicant’s appropriate period of common law notice (if applicable), whether the Applicant was entitled to the value of forfeited RSUs that would have vested during the common law notice period, and whether the Applicant was entitled to punitive damages due to the Respondent’s breaches of the ESA.
The Applicant’s arguments with respect to the Employment Agreement and the RSU Agreements were as follows:
- The Employment Agreement violated the ESA because the service recognition provision conflicted with the termination without cause provision; the latter provided that within the first three (3) months of his employment, the Applicant would receive only two (2) weeks’ notice or base pay.
- The 2020 RSU Agreement breached Section 61 of the ESA which, the Applicant argued, required employers to maintain all “terms and conditions of employment during the statutory notice period”.
- The 2021-2023 RSU Agreements were “misleading to employees” because it was ambiguous to state that unvested RSUs were to be forfeited on termination, and that the date on which termination of employment would occur would not be extended by any notice period, unless applicable employment standards legislation explicitly required vesting during a statutory notice period.
- The RSU Agreements violated the ESA because they required employees to forfeit their RSUs, even if the Respondent terminated their employment as a reprisal or for other reasons prohibited by the ESA.
Decision
Employment Agreement
The Court held that the termination provision in the Employment Agreement contravened the ESA. Specifically, it violated Section 12(a) of the ESA because it provided only two (2) weeks’ notice or pay in lieu thereof, which was insufficient as the Applicant was employed for nine (9) years with his previous employer and that service was required to be recognized for statutory purposes. Though the Court recognized the Employment Agreement contained a saving provision which assured compliance with the ESA, the Court affirmed that saving provisions will not “cure” provisions in the same agreement that violate the ESA. As such, the Court awarded the Applicant ten (10) months of common law reasonable notice, less mitigation income and the value of statutory payments. For a discussion of the case law the Applicant attempted to rely on, please refer to our blog article on the Dufault vs. Township of Ignace decision.
2020 RSU Agreement
In the key portion of the Decision, the Court disagreed with the Applicant’s argument that the ESA requires the employer to maintain all terms and conditions of employment during an employee’s statutory notice period.
In reaching this conclusion, the Court distinguished between Section 60 of the ESA, which sets out an employer’s obligations when working notice of termination is provided, and Section 61 of the ESA, which sets out an employer’s obligations when pay in lieu of working notice is provided.
Under Section 60, the employer must continue an employee’s wages, benefit plan contributions, and “shall not reduce the employee’s wage rate or alter any other term or condition of employment”.
Under Section 61, an employer must provide an employee with a lump sum equal to the amount they would have received under Section 60 had working notice been provided (commonly referred to as “payment in lieu of notice”), and benefit plan contributions must be continued. Notably, Section 61 does not contain the same language as Section 60 with respect to maintaining wage rates and terms and conditions of employment during the statutory notice period.
As the Court explained, the calculation of payment in lieu of notice under Section 61 of the ESA is based on the definitions of “wages” and “regular wages” under the ESA, which does not include RSUs:
Section 61(1.1) of the ESA sets out the formula that employers must use to calculate pay in lieu of notice for employees, like [the Applicant], who are not paid hourly. That formula is based on the “regular wages” earned by the employee in the 12 weeks before termination. The ESA’s definition of “wages” and “regular wages” only includes monetary remuneration, payments required under the ESA, and certain prescribed allowances. Had the legislature chosen to include other forms of compensation in “wages” it could have adopted a more expansive definition [under Section 1(1) of the ESA] that would include stock options and RSUs. [Emphasis added.]
Further, the Court found that “benefits” in the context of Sections 60 and 61 was not meant to encompass RSU entitlements, but rather encompassed the treatment of benefit plan contributions only as the section plainly reads.
As RSUs do not constitute “benefit plan contributions” or “wages” within the meaning of the ESA, the Court found that the 2020 RSU agreement did not violate Section 61 of the ESA by allowing forfeiture of RSUs during the statutory notice period where payment in lieu of notice was provided.
2021-2023 Agreements
The Court found the RSU forfeiture provision to be clear as it did not purport to reference any specific piece of legislation. Rather, its language excluding RSU vesting during the statutory notice period unless required by statute simply acknowledged the possibility that legislation may be amended the future. It was not ambiguous to reference legislation that could in the future expressly require RSU vesting during the statutory notice period, even though the ESA does not currently do so.
Punitive Damages
The Court declined to award any punitive damages to the Applicant despite the Respondent’s delay in paying his statutory entitlements. The Court found that the conduct of the Respondent, while suggesting “more than an unintentional administrative error”, did not meet the high threshold of harsh or malicious behaviour that would warrant an award of punitive damages.
Key Takeaways for Employers
The Decision provides clarity to employers that certain compensation types (RSUs, stock options etc.) are not considered “wages” under the ESA. While this finding provides more flexibility to employers in terms of dealing with the treatment of equity incentive awards during the statutory notice of termination period, we caution that the Decision could still be subject to appeal. Plan participation must also be allowed to continue during any period of working notice under the ESA.
Additionally, the Decision does not displace well established case law that requires employers to ensure that employees clearly waive ongoing entitlements to plan participation and vesting during the common law notice period. As such, careful drafting with the input of legal counsel is still strongly recommended when it comes to issuing equity incentive documentation. For a further discussion of this topic, please see our blog article regarding the Supreme Court of Canada’s decision in Matthews v. Ocean Nutrition.
Finally, it is important for employers to regularly review their existing employment and award agreement templates to ensure clear and unambiguous language is used in respect of termination of employment and forfeiture of award provisions.
We will be monitoring this case to see if the Applicant will seek leave to appeal the decision to the Ontario Court of Appeal. Any updates will be posted on this blog.
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