Careers & Employment

Unvested Stock Options: Entitlements After Termination

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In many companies, employees get options for stocks or restricted share units as a form of compensation. While such compensation works great for the continuing employees, for the dismissed ones, it can create a problem. The first hitch is, whether that compensation should be continued over the notice period or not.

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In this article, employment lawyers have tried to explain the stock option plans for the employees. These options would help you to decide whether a wrongfully dismissed employee is entitled to get compensation for all those lost unvested stock options. If you are interested to know more about this issue, check the following section of this article.

What The Law Says

Even though many employers intentionally draft the stock options so that the terminated employees do not get the benefit. However, the Law of Ontario opposes this step. The terminated candidate is legally entitled to all the benefits, wages, and other types of compensation he or she is eligible for during the notice period.

Limiting Stock Options During Notice Period

Previously, it was easier for employers to limit the stock options of the employees over the notice period. However, the laws have changed ever since. Right now, the law in Ontario indicates that the employees are entitled to any of the payments.

The only way to stop the employees from getting these benefits is to expressly exclude the bonus payment options upon the termination in the contract. Even though this is an issue related to bonus payments, it can be used in the case of the stock options as well. That’s why it is better to talk to an employment lawyer before you sign any contract with a company.

The Stock Option Limitations Must Be Very Clear

Recently, the Court of Appeal for Ontario stated that the employer is obliged to pay damages to the employees for the loss of the unvested stock options. The employer would not be liable to pay any such damages if there is an express language in the contract or the stock options or any such similar documents limiting the right for the compensation.

However, the existence of such express language gets scrutinized by the court closely. The law indicated that the employer would not have to make payments for any compensation if the language is unambiguous and clear. Saying that you have to understand that the enforcement of such an agreement entirely depends on each case.

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The Employees Must Know About The Stock Option Limitation

In another case, the court has indicated that having a legally compliant and well-drafted contractual provision is not enough to keep the employers from offering the damages. The employer has to bring the stock option limitations to the attention of the employee while he or she was signing the employment contract.

That means the employer will not only have to write the limitations in an unambiguous language he/she should also explicitly communicate with the employee about this matter. It is the only way for the employers to not pay any damages for the unvested stock options.

All in all, the courts of Canada have made it clear that if the companies are not extremely careful about the wordings of the stock options, it would go in favour of the terminated employees. To avoid such a situation, the employers must take the advice of an employment lawyer while drafting the plans for their stock options. The employees, on the other hand, should get in touch with the lawyers to make sure that they are getting the dues properly.