$4.7 Million Later: Why Incentive Plan Language Matters

Many employees are entitled to bonuses or equity-based incentives (“Incentives”) in addition to their base wages and benefits. The terms of those Incentives may be detailed in the employment agreement or in a separate agreement. It is not uncommon to see language in those terms which purports to end the employee’s entitlement to further Incentives on the employee’s termination date.

In 2020, we saw the Supreme Court of Canada conclude that very clear language is required to prevent an employee from being entitled to compensation for those Incentives during a reasonable notice period [see Matthews v Ocean Nutrition Canada Ltd., 2020 SCC 26 (CanLII) and our related articles here and here]. We now have additional guidance from the Ontario Court of Appeal that even when the language is sufficiently clear to remove the employee’s entitlement to the Incentive during a reasonable notice period, the language must also comply with employment standards legislation or it risks being void.

The Ontario Court of Appeal recently released its decision in Wigdor v Facebook Canada, 2026 ONCA 572 (CanLII). The decision dealt with a claim for wrongful dismissal in which the former employee, Mr. Wigdor, challenged the enforceability of a termination clause in his employment agreement and the enforceability of a clause in a Restricted Stock Unit incentive plan (“RSU Plan”) which ended his right to compensation under the RSU Plan on his termination date.

Mr. Wigdor was awarded restricted stock units (“RSUs”) when he commenced employment with Facebook Canada (now, “Meta”). Those RSUs have no value until they vest over a 4-year period. When they vest, the employee automatically receives the corresponding number of common shares of Meta without having to pay for them. The value of the RSUs is determined based on the value of the Meta shares on the vesting date.

When Mr. Wigdor was terminated, Meta took the position that he forfeited the remainder of his unvested RSUs immediately.

At the trial level, the application judge determined that the termination clause in Mr. Wigdor’s employment agreement was unenforceable because it was contrary to the Ontario Employment Standards Act (“ESA”) and he was entitled to 10 months of reasonable notice. However, the application judge also determined that although the RSUs were part of Mr. Wigdor’s employment compensation, the wording of the RSU Plan was clear that he was not entitled to the value of the RSUs that would have vested during the 10-month reasonable notice period. Mr. Wigdor appealed that finding (among other things).

An example of the RSU Plan wording at issue is as follows:

[N]o vesting shall continue during any notice period in relation to his/her Termination, whether specified under contract or statutorily, regulatory or common law.

Mr. Wigdor argued that the termination provision in the RSU Plan was void because it was contrary to the terms of the ESA which prevents an employer from reducing an employee’s terms and conditions of employment during the termination notice period required by the ESA. The relevant provisions of the ESA are as follows:

Requirements during notice period

60 (1) During a notice period under section 57 or 58, the employer,

(a) shall not reduce the employee’s wage rate or alter any other term or condition of employment;

(b) shall in each week pay the employee the wages the employee is entitled to receive, which in no case shall be less than his or her regular wages for a regular work week; and

(c) shall continue to make whatever benefit plan contributions would be required to be made in order to maintain the employee’s benefits under the plan until the end of the notice period.

...

Pay instead of notice

61 (1) An employer may terminate the employment of an employee without notice or with less notice than is required under section 57 or 58 if the employer,

(a) pays to the employee termination pay in a lump sum equal to the amount the employee would have been entitled to receive under section 60 had notice been given in accordance with that section; and

(b) continues to make whatever benefit plan contributions would be required to be made in order to maintain the benefits to which the employee would have been entitled had he or she continued to be employed during the period of notice that he or she would otherwise have been entitled to receive. [Emphasis added.]

The application judge determined that s.60 only applies when an employer provides an employee with working notice of termination. As Meta had not provided Mr. Wigdor with working notice of his termination, but provided pay in lieu of that notice, the trial judge looked only at s.61 and determined that it did not prevent an employer from altering any term or condition of employment during the notice period. As such the termination clause in the RSU Plan did not violate the ESA.

The Court of Appeal disagreed. It found that “properly interpreted, s. 61(1)(a) of the ESA requires that the lump sum payment to which an employee is entitled where pay is provided in lieu of working notice must be calculated on the basis that there are no alterations to the terms or conditions of employment during the statutory notice period.”

The Court concluded that s. 61 incorporates by reference the content of s. 60. This includes the obligation in s. 60(1)(a) that an employer shall not “alter any term or condition of employment” during the statutory notice period. Taken together, the two sections are intended to ensure that the employee receives the same amount of compensation whether they are provided with working notice or pay in lieu of notice.

The Court determined that Mr. Wigdor was entitled to be compensated for the value of the RSUs that would have vested during his 10-month reasonable notice period - $4.7 million.

The Alberta Employment Standards Code contains similar provisions:

57(1) Instead of giving a termination notice, an employer may pay an employee termination pay of an amount at least equal to the wages the employee would have earned if the employee had worked the regular hours of work for the applicable termination notice period.

61(1) Neither the wages, wage rate, nor any other term or condition of employment may be reduced by an employer between the time termination notice is given by the employer or employee and the date employment terminates, whether or not work is required to be performed during that period.

Although the wording is different, it is possible that these provisions will be interpreted in the same way as the provisions in Ontario. We therefore recommend that out of an abundance of caution, Incentive plans (both bonuses and equity incentives) should be drafted taking into account that the Incentive may have to be paid during the statutory minimum notice period (or form part of pay in lieu of the statutory minimum notice period if it would have been payable during that notice period) even if not payable during the common law notice period.

Our Labour and Employment team can assist with drafting incentive plans to ensure they comply with the Employment Standards Code while excluding eligibility during reasonable notice periods. Contact us to discuss whether your incentive plan language reflects legal requirements and best practices.