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Employee Incentive Programs and Without Cause Terminations

September 2, 2020

Employee Incentive Programs

Author: Matthew Bobawsky

Employee Incentive Programs Policies in Alberta

Employers often use employee incentive programs to recognize and reward good performance and retain employees. To ensure these programs have their desired effect, many employers implement policies that govern – and carefully describe – when the employee is entitled to the incentive and when they are not. More often than not, employers use these policies to limit an employee’s entitlement to a particular incentive when the employee’s employment is terminated without cause, which has produced an appreciable amount of litigation in recent years.

For example, in  Styles v Alberta Investment Management Corporation, a former employee challenged the employer’s decision to terminate his employment after 23 years of service on the basis that, among other things, his termination was a breach of the duty of good faith because it had the incidental effect of disentitling the former employee of a long-term incentive. The Alberta Court of Appeal dismissed the former employee’s challenge and held that the duty of good faith did not apply to the employment relationship to preclude an employer from exercising its prerogative powers to organize the workforce as it sees fit, including terminating an employee’s employment without cause. Although Styles is still the law in Alberta, the Supreme Court of Canada is anticipated to revisit Styles in a constructive dismissal case called Ocean Nutrition Canada Ltd v Matthews in the fall of 2020.

Enforcing Termination Provisions

Another example is Battiston v Microsoft Canada Inc, a recent case from Ontario that should give employers pause about the enforceability of termination provisions in their employee incentive programs.

Mr. Battiston worked for Microsoft for almost 23 years. As part of his compensation, Microsoft awarded Mr. Battiston stock bonuses every year from 2013 until 2017 under its Stock Awards Agreement. Under the terms of Microsoft’s Stock Awards Agreement, each stock bonus awarded to Mr. Battiston would vest in percentage increments each year. The express language of Microsoft’s Stock Awards Agreement also purported to terminate any unvested stock bonuses in the event Mr. Battiston’s employment was terminated without cause, including any potential vesting that might occur over Mr. Battiston’s notice period (the “Termination Provisions”). When Mr. Battiston was awarded a stock bonus under the Stock Awards Agreement, he received an email that stated:

Congratulations on your recent stock award! To accept this stock award, please go to My Rewards and complete the online acceptance process. A record will be saved [sic] indicating that you have read, understood and accepted the stock award agreement and the accompanying Plan Documents. Please note that failure to read and accept the stock award and Plan documents may prevent you from receiving shares from this stock award in the future.

Questions? Please find additional information about stock awards on HRWeb.

(“Microsoft’s Email Communication”)

Mr. Battiston received this type of email from Microsoft each year and testified that his practice was simply to click acceptance of the stock plan without reading the terms of the Stock Awards Agreement because of its length.

Microsoft terminated Mr. Battiston’s employment without cause in August 2018. At the time, Mr. Battiston had 1,057 awarded but unvested shares.

At the trial of Mr. Battiston’s wrongful dismissal action, he challenged the enforceability of express language in Microsoft’s Stock Awards Agreement that purported to terminate any unvested stock bonuses in the event of termination without cause. Mr. Battiston argued:

  1. the Stock Award Agreement did not unambiguously oust Mr. Battiston’s entitlement to the vesting of stock awards during the notice period;
  1. the termination provisions in the Stock Award Agreement are onerous and unenforceable as Microsoft did not bring those provisions to Mr. Battiston’s attention;
  1. the termination provisions are void on the grounds that the stock awards constitute “wages” under the Employment Standards Act, 2000, SO 2000, c 41 (“ESA”) as the termination provisions disentitle Battiston to vesting of stock awards during the statutory notice period.

The court rejected Mr. Battiston’s first argument. In the court’s view, the express wording of Microsoft’s Stock Awards Agreement unambiguously ousted Mr. Battiston’s entitlement to the vesting of stock awards during the notice period.

The court accepted Mr. Battiston’s second argument. The court applied the rule from Tilden Rent-A-Car Co v Clendenning (1976) that puts an onus on the party that drafted a contract to take reasonable steps to bring harsh and oppressive provisions to the attention of the other party. In other words, Microsoft had a legal obligation to take reasonable steps to bring the termination provisions of Microsoft’s Stock Awards Agreement to Mr. Battiston’s attention. In accepting Mr. Battiston’s second argument, the court found:

  • the Termination Provisions were harsh and oppressive because they precluded Mr. Battiston’s right to have unvested stock awards vest if in the event that he was terminated without cause;
  • Mr. Battiston was unaware of the Termination Provisions;
  • the Termination Provisions were not brought to his attention by Microsoft; and
  • Microsoft’s Email Communications did not amount to reasonable measures to draw the harsh and oppressive Termination Provisions to Mr. Battiston’s attention. 

The court held Mr. Battiston was entitled to damages in lieu of the 1,057 shares that remained unvested.

The court declined to rule on Mr. Battiston’s third argument. 

Employee Incentive Programs Lawyers

Although courts in Alberta have consistently doubted whether the rule from Tilden Rent-A-Car Co v Clendenning (1976) applies in Alberta, employers should nonetheless take reasonable steps to draw to the attention of their employees any provisions of a bonus, short-term or long-term incentive, or stock bonus plans that purport to terminate the employee’s entitlement upon termination without cause.

If you have questions about your employee incentive programs, please contact any of Carbert Waite’s Employment Lawyers.