If you receive restricted stock units as part of your compensation, a major new decision from Ontario’s highest court should get your attention.
An employee who lost millions of dollars in unvested RSUs when his employment was terminated has been awarded an additional US$4.7 million after the Ontario Court of Appeal found that provisions attempting to stop the units from vesting were unenforceable. h
It’s an extraordinary amount of money.
But the lesson from this decision isn’t limited to executives earning millions of dollars in stock.
If you’re an executive, senior manager, technology worker, salesperson or anyone else who receives RSUs, bonuses, commissions or other incentive compensation, what happens to that compensation when you’re fired can dramatically change the value of your severance package.
And just because your employer says your unvested RSUs disappear when your job ends doesn’t necessarily mean they do.
His RSUs were worth millions
The employee in this case was a senior technology executive in Ontario.
His compensation included a base salary of more than $250,000, benefits and significant grants of restricted stock units.
RSUs are a form of equity compensation. They are often granted to employees but don’t become theirs immediately. Instead, the units typically vest according to a schedule, often over several years.
The employee was terminated in December 2023.
At the time, thousands of his RSUs had not yet vested.
The company’s RSU agreements contained language intended to stop further vesting once his employment ended.
In other words, if he was fired before the next vesting date, he would lose those units.
That could have been the end of the story.
It wasn’t.
The Court of Appeal ultimately determined that he was entitled to a 10-month reasonable notice period.
During those 10 months, another 9,405 RSUs would have vested.
Their value?
Approximately US$4.7 million.
READ MORE: Tech exec’s severance victory: Turning termination into triumph
Why the RSU language didn’t work
This is where the decision becomes extremely important for other Ontario employees.
The employer tried to use the RSU agreement to stop the employee’s stock from continuing to vest as soon as he was fired.
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The court said it couldn’t do that.
Those RSUs were part of his compensation, and Ontario law required that compensation to continue during the minimum period following his termination.
Because the RSU agreement tried to take away that basic right, the restriction wasn’t valid.
And once that restriction was out of the way, the employee could claim the RSUs he would have received during his full 10-month severance period.
That was worth about US$4.7 million.
Your RSU agreement doesn’t necessarily have the final word
This is something I want every employee with equity compensation to understand.
You may have an RSU agreement that says something along the lines of:
If your employment ends, all unvested units are forfeited immediately.
You may read that and assume there’s nothing you can do.
Don’t make that assumption.
Putting something in a contract does not automatically make it enforceable.
An employment agreement or equity plan still has to comply with Ontario employment law.
If language attempting to take away your compensation is not legally valid, that restriction may not hold up.
And depending on how much equity you receive, that can have enormous financial consequences.
READ MORE: Boss took away your bonus in Ontario? 3 things you must do
Severance isn’t just your salary
One of the most common mistakes employees make after losing their job is looking only at their base salary.
Your compensation may be much broader than that.
Depending on your circumstances, your severance can include the compensation you would have received had you continued working through your proper notice period.
That can potentially include:
- Base salary
- Bonuses
- Commissions
- RSUs and other equity compensation
- Benefits
- Other incentive compensation
This is particularly important for executives, senior managers and sales professionals.
Someone earning a $200,000 salary may also receive significant annual bonuses, commissions or stock awards.
If the employer calculates severance using salary alone, the difference can easily be worth tens or hundreds of thousands of dollars.
As this recent decision demonstrates, sometimes the difference can be measured in millions.
READ MORE: Employer refuses to provide severance pay in Ontario? 3 things you must do
Don’t assume a forfeiture clause is enforceable
The RSU documents in this case weren’t silent about what would happen after termination.
They specifically attempted to stop vesting.
The employer still wasn’t able to rely on those provisions.
That should tell employees something.
These situations aren’t resolved simply by finding a sentence that says, “You lose your RSUs when you’re fired.”
The actual wording matters.
So does your employment contract, your vesting schedule and how the RSUs fit into your overall compensation.
That’s why I would never advise someone with substantial equity compensation to sign a termination package based simply on what their employer tells them the RSU plan says.
Losing your job can trigger a much larger entitlement than you realize
I often speak with people who have been terminated and are focused primarily on the salary portion of their severance offer.
Then we start looking at the rest of their compensation.
There’s a bonus.
There are commissions.
There are benefits.
There are equity awards scheduled to vest.
Suddenly, the value of the termination claim looks very different.
For many non-unionized employees, full severance can reach as much as 24 months’ pay, depending on factors such as age, position, length of service, and the availability of similar employment.
If a significant portion of your compensation consists of RSUs or other incentives, determining what should be included becomes extremely important.
READ MORE: 6 common employer mistakes that could lead to a bigger payout after termination
Fired with unvested RSUs? Don’t sign first and ask questions later
If you’ve recently lost your job and your employer tells you that your unvested stock has been cancelled, don’t automatically accept that conclusion.
And don’t sign a release simply because the termination letter gives you a deadline.
Have your employment contract, RSU agreements, vesting schedule and severance offer reviewed together.
You need to know two things:
How much severance are you actually owed, and what compensation should be included in it?
For one Ontario employee, answering those questions resulted in an additional US$4.7 million.
Your situation may involve very different numbers.
But the principle is the same.
When you’re fired, your severance should reflect what you’re legally owed — not simply what your employer would prefer to pay.
Before you sign anything, contact an employment lawyer at Samfiru Tumarkin LLP to find out what your compensation should look like.
