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Employment-Related Contract Drafting




Enforceable but “Harsh” Termination Provision Defeated by Lack of Notice

The Employers' Edge blog has written extensively about the challenges of drafting an enforceable termination provision. This week brings us a particularly frustrating decision of the Ontario Superior Court which held that the otherwise legally enforceable termination provisions of a Stock Awards Agreement could not be enforced as the employer did not specifically bring them to the employee’s attention.

In Battiston v Microsoft Canada Inc, the plaintiff was a long-service employee of Microsoft who, in addition to his base salary, received benefits including stock awards, amounting to approximately 30% of his annual compensation. Upon termination, Microsoft advised that the plaintiff was no longer entitled to the vesting of any granted by unvested stocks in accordance with the terms of its Stock Award Agreement. The plaintiff argued that he was entitled to have previously granted stock awards vest during the notice period on the basis that he did not read the Stock Award Agreement and the termination provisions had not been brought to his attention.

Justice Faieta held that the stock awards were an integral part of the plaintiff’s compensation package and, as such, he was prima facie entitled to damages in lieu of the stock awards. Importantly, and as with the case with common law reasonable notice, this prima facie entitlement can be defeated by clear and unambiguous language limiting an employee’s entitlements upon termination. 

In this case, Justice Faieta held that “it is quite clear that the Stock Award Agreement provides that an employee’s right to vest Stock Awards terminates when that employee is no longer actively providing services to employer when he or she has been terminated for any reason even if such reason is unlawful... the Stock Award Agreement unambiguously excludes Battiston’s right to vest his stock awards after he has been terminated without cause.”

Despite this finding, Justice Faieta continued to hold that the termination provisions of the Stock Award Agreement were “harsh and oppressive” such that Microsoft’s failure to specifically draw the plaintiff’s attention to them was sufficient to render the provision unenforceable. 

This decision is concerning for employers and emphasizes that even a technically enforceable termination provision may not be sufficient to escape an award of damages. As a best practice, any contractual terms that are disadvantageous to an employee – for example, termination provisions – should be specifically brought to their attention before the agreement is entered into.  CCPartners can assist in reviewing, updating and drafting employment contracts. Click HERE for a list of our team members who can help you with your employment needs.

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