Summary
In Khatib v GoEasy Ltd, 2026 ONSC 3513, the Ontario Superior Court adopted a novel approach to wrongful dismissal damages by awarding compensation for equity-based incentives that would not have fully vested until after the reasonable notice period. This departs from the established judicial approach in Ontario, which has limited damages for wrongful dismissal to compensation that would have been earned and payable during the reasonable notice period.
The Facts
The plaintiff was employed by GoEasy Ltd. as a Senior Vice-President for approximately 3.5 years. In addition to his base salary, he participated in the employer’s Short-Term Incentive Plan (“STIP”) and its Long-Term Incentive Plan (“LTIP”). The LTIP provided two types of grants: Restricted Stock Units (“RSUs”) and Share Options (“SOs”).
At trial, the plaintiff sought damages based on a 12-month notice period, relying in part on his allegation that GoEasy had induced him to leave secure employment. He also claimed wrongful dismissal damages for lost benefits, STIP and LTIP entitlements, as well as bad faith, punitive and moral damages.
GoEasy denied any inducement and argued that the appropriate common law notice period was six months. GoEasy took the position that both the plaintiff’s STIP and LTIP entitlements ceased at the end of the plaintiff’s active employment. The STIP plan stated that STIP compensation would not be earned by a participant “who is terminated or resigns from employment” before the prescribed payout dates. Notably, the employment agreement did not address the effect of termination on STIP entitlements. With respect to LTIP participation, GoEasy relied on separate annual grant contracts which stated that RSUs and SOs would be forfeited upon termination.
The Decision
The Court dismissed the plaintiff’s inducement claim as the plaintiff had only worked for his previous employer for about two years and had a history of changing employers every two to four years. The Court found that the contract negotiations between the parties reflected the “normal back and forth between two sophisticated parties negotiating a senior management position” and that the plaintiff voluntarily signed an agreement containing a “no-inducement” clause. In the absence of any inducement, the Court set the reasonable notice period at eight months.
The Court found that the plaintiff was entitled to prorated STIP payments for the full eight-month notice period. Notably, the employment agreement contained no forfeiture language, and the Court found that GoEasy could not rely on the STIP plan documents because there was no evidence they had been provided to the plaintiff when he was hired. The Court also found that the STIP bonuses—equal to 40% of base salary and paid annually—were an integral part of the plaintiff’s compensation.
For LTIP entitlements, the Court noted that the plaintiff received annual grants equal to 40% of base salary, as well as a one-time “off-cycle” LTIP grant of 5,000 units in the year he was hired. Although the Court accepted that the plaintiff’s entitlements were governed by separate grant contracts, it found that the termination provisions in those agreements did not define “termination date” and therefore did not remove his entitlement to continued LTIP participation during the reasonable notice period. The Court held that the plaintiff’s entitlement to RSUs and SOs continued throughout the eight-month notice period and that any LTIP amounts vesting before the notice period expired had to be valued.
The plaintiff also sought compensation for the prorated value of RSU and SO grants that vested after the notice period expired. Despite GoEasy’s argument that granting pro-rated vesting would be “a radical departure from decades of well-established Ontario jurisprudence”, the Court accepted the plaintiff’s claim for prorated vesting of RSUs and SOs. The Court found that the employment agreement was silent on how LTIP entitlements, including unvested units, would be treated on termination, and that the termination and forfeiture language in the grant agreements was ambiguous and unenforceable. In accordance with “important employment law principles”, the Court held that the plaintiff was entitled to be informed of the consequences of termination at the time of hire, and that any ambiguity or silence in the employment agreement should be resolved in his favour. The Court also noted that other GoEasy employees who had resigned were permitted to retain the prorated value of unvested stock units after departure and found that this strengthened the inference that the plaintiff was entitled to pro-rated vesting during the reasonable notice period.
Takeaways for Employers
If not overturned on appeal, the decision in Khatib v GoEasy Ltd. would represent a significant shift in Ontario’s approach to unvested equity compensation. For employers that provide incentive or equity-based awards, the financial consequences could be substantial.
Although it remains to be seen whether Justice Mathen’s approach will be followed by other Ontario judges, the decision underscores the importance of including clear, enforceable language in employment agreements that addresses any entitlements that will be forfeited on termination. When the conditions of participation in equity-based incentive plans are set out in separate plan documents, employers should ensure that plan documents are provided to employees at the time of hire or, alternatively, that the key terms regarding entitlement and forfeiture are included directly in the employment agreement.
Need More Information?
For more information or assistance in setting clear and enforceable limits on compensation payable upon termination, contact Anne Marie Heenan at aheenan@filionlaw.com, or your regular lawyer at the firm.