Summary
In Wigdor v Facebook Canada Ltd., 2026 ONCA 572, the Ontario Court of Appeal (the “ONCA”) confirmed that employment agreement language may violate the Ontario Employment Standards Act, 2000 (the “ESA”) if it purports to forfeit the continued payment of equity-based compensation upon employment termination.
This decision highlights that employers should exercise caution when drafting forfeiture language for equity-based compensation upon termination. If equity entitlements form part of an employee’s terms and conditions of employment, the employer will be required to continue the employee’s participation throughout the employee’s statutory notice period or, alternatively, compensate the employee accordingly where pay in lieu of notice is provided.
Background
The appellant, Dr. Wigdor, founded Chatham Inc. (“Chatham”), a company providing technology consulting services for financial, legal and technological firms in 2011. Following Dr. Wigdor’s provision of services to Meta Platforms, Inc. (“Meta”) through Chatham beginning in 2016, Meta and Dr. Wigdor negotiated a share-purchase agreement to sell Chatham to Meta in 2020. The share-purchase agreement included the stipulation that Dr. Wigdor would become an employee of Facebook Canada Ltd., and that his years of service with Chatham would be recognized. As part of the purchase, Meta also agreed to grant Dr. Wigdor 43,380 Restricted Stock Units (“RSUs”) valued at $7.5 million USD. Dr. Wigdor was employed pursuant to a written employment agreement, which included a letter confirming the granting of the RSUs (the “Employment Agreement”). The letter was incorporated into the employment agreement.
The RSUs were governed by Meta’s 2012 Equity Incentive Plan (which was incorporated by reference into the Employment Agreement) and several RSU agreements. All of the RSU agreements included a forfeiture provision stipulating that all unvested RSUs would be forfeited upon the date of termination of employment, which was expressly stated would not be extended by any period of notice required under contract, statute, or common law. However, the 2021-2023 RSU agreements included the following “saving provision”:
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).
[Emphasis added]
Meta terminated Dr. Wigdor’s employment on a without cause basis, effective December 8, 2023. Dr. Wigdor subsequently filed a wrongful dismissal claim, alleging inter alia that the termination clause in the Employment Agreement violated the ESA, and that he was entitled to damages for the RSUs that would have vested during the common law reasonable notice period.
The Ontario Superior Court Decision
The application judge found that the termination provisions in the Employment Agreement violated the ESA because they purported to contract out of Dr. Wigdor’s rights under the ESA to have his years of service with Chatham recognized for the purpose of calculating his termination entitlements. The Employment Agreement specifically provided that if Dr. Wigdor were terminated within the “first three (3) months of [his] employment” he would be entitled to two (2) weeks of termination notice or pay in lieu thereof. The application judge held that given Dr. Wigdor’s prior service to Chatham, this provision ran contrary to his entitlements pursuant to the ESA. Accordingly, the application judge held that Dr. Wigdor should receive ten (10) months of common law reasonable notice.
With respect to the RSUs, Dr. Wigdor argued that the forfeiture clause limiting his RSU entitlements beyond the date of his termination violated sections 60 and 61 of the ESA. Dr. Wigdor specifically argued that the requirement in section 60(1) not to alter a term or condition of employment during the notice period also applies to the calculation of any lump sum provided in lieu of notice under section 61(1). Section 60(1) of the ESA stipulates that an employer “shall not reduce the employee’s wage rate or alter any other term or condition of employment” during a statutory notice period. Section 60(1) also requires employers to continue making contributions to any benefit plans in which the employee participated. Section 61(1) permits an employer to provide pay in lieu of statutory termination notice, so long as the employee receives an amount equal to what “the employee would have been entitled to receive under section 60 had notice been given.”
The application judge rejected this argument, holding that the requirement not to alter any term or condition of employment during the notice period applied only to working notice, not pay in lieu of notice. The application judge also found that RSU entitlements could not be considered “benefits” or “wages.”
Further, the application judge held that the RSU agreements were enforceable and prohibited continued vesting of RSUs during the notice period. Accordingly, the application judge found that Dr. Wigdor had no entitlement to any amounts in lieu of RSUs.
The Ontario Court of Appeal Decision: Key Findings
The ONCA agreed with the application judge’s conclusion that the termination provisions in the Employment Agreement contravened the ESA and were therefore void. However, the ONCA found that the application judge erred in concluding that Dr. Wigdor was not entitled to any damages for the RSUs that would have vested during the ten (10) month common law reasonable notice period.
The ONCA began by outlining the principles applicable to the issue on appeal. The ONCA referenced the Supreme Court of Canada’s decision in Matthews v Ocean Nutrition, 2020 SCC 26 [2020] 3 SCR 64, which provides a guiding framework for determining whether a terminated employee is entitled to damages for a bonus or similar entitlement that would have been payable during the common law reasonable notice period. The Supreme Court outlined that a court should ask two questions:
- But for the termination, would the employee have been entitled to the bonus or similar entitlement during the reasonable notice period?
- If so, does the wording of the bonus plan unambiguously alter or remove the employee’s common law right to reasonable notice?
The ONCA found that there was no dispute with respect to the first question. It was clear that had Dr. Wigdor remained employed throughout the ten (10) month common law reasonable notice period, he would have been entitled to approximately $4.7 million USD in RSUs that would have vested during that period.
With respect to the second question, the ONCA found that the application judge erred in interpreting sections 60 and 61 of the ESA, and in subsequently finding that the RSU agreements did not violate those provisions. Specifically, the ONCA held that sections 60 and 61 of the ESA should be read together because section 61(1)(a) explicitly incorporates the content of section 60, including the obligation that an employer may not alter any term or condition of employment during the statutory notice period. The ONCA highlighted that the reading together of sections 60 and 61 is consistent with the overarching remedial purpose of the ESA, which is intended to protect employees, by providing the same financial compensation regardless of whether their employment is terminated by working notice or by pay in lieu of notice.
Practically, this means that even where an employer provides pay in lieu of termination notice, the employer must calculate that payment on the basis that the employee’s terms or conditions of employment would have continued unaltered during the statutory notice period. Accordingly, any equity compensation that would have become payable during the statutory notice period must be included in the calculation of the lump sum payment in lieu of notice.
Given the ONCA’s interpretation of sections 60 and 61 of the ESA, the ONCA also found that the RSU agreements contravened the ESA because they purported to alter a “term or condition of employment” during an employee’s statutory notice period by depriving employees of ongoing vesting during that period. Because the RSUs were treated as an element of Dr. Wigdor’s compensation, the ONCA held that there could be no doubt that the RSU entitlements were a term or condition of Dr. Wigdor’s employment within the meaning of the ESA. Accordingly, the provisions of the RSU agreements relating to the forfeiture of entitlements upon termination were void, entitling Dr. Wigdor to damages for the RSUs that would have vested during the ten (10) month common law reasonable notice period.
Despite the saving provision in the 2021-2023 RSU agreements, which purported to forfeit RSU entitlements upon termination of employment “unless explicitly required by applicable legislation,” the ONCA held that the saving language did not assist Meta in this case. Because the continued vesting of RSUs during a statutory notice period is not explicitly addressed in the ESA, the ONCA held that the saving language was not engaged.
The Court of Appeal therefore found that Dr. Wigdor was entitled to the value of the RSUs that would have vested during the ten (10) month common law reasonable notice period.
Key Takeaways for Employers
This decision provides important guidance for employers regarding the need to maintain all terms and conditions of employment during the statutory termination notice period. This includes equity entitlements where those entitlements are incorporated into the employment agreement as an element of compensation. These requirements apply even where an employer provides statutory termination entitlements by way of a lump sum payment in lieu of notice. Employers should exercise caution when drafting employment agreements and incentive compensation documents, particularly where the language purports to limit an employee’s entitlement to equity-based compensation following termination. If the language does not comply with the ESA, the employer may face damages for entitlements that would otherwise have vested during the common law reasonable notice period.
Need More Information
We encourage employers to consult our firm to ensure that their employment agreements and equity compensation plans are up to date in light of this decision.