Ontario RSU Forfeiture Ruling | Impact on Employment Law

Court Ruling on RSU Forfeiture

The Ontario Court of Appeal has delivered a significant ruling regarding equity-based compensation for employees. In the case of Wigdor v. Facebook Canada Ltd., the court decided that Restricted Stock Unit agreements which mandate immediate vesting termination upon dismissal may violate the Ontario Employment Standards Act. This decision clarifies how statutory notice periods protect an employee’s total compensation package, regardless of whether they receive working notice or a lump-sum payment.

Dr. Wigdor started his work with Facebook Canada on 12 September 2020 after the company acquired his previous business. As part of his employment contract, he received a grant of 43,380 RSUs. These units were governed by a 2012 Equity Incentive Plan. The individual RSU agreements contained specific language stating that all rights to these units would end the moment employment ceased. The 2021-2023 agreements attempted to reinforce this by stating that the vesting date would not be extended by any notice period, pay in lieu of notice, or damages awarded under local law.

The Legal Conflict

Facebook Canada ended Dr. Wigdor’s employment on 4 December 2023. When he refused to sign a release that included the forfeiture of his unvested RSUs, he filed a claim for wrongful dismissal. A lower court initially ruled that the forfeiture provisions were enforceable because it determined that the Employment Standards Act sections governing working notice and pay in lieu of notice operated as separate entities. The judge found that the RSUs were not wages or benefits, leading to the dismissal of the claim for the USD4.7 million in stock units.

The Court of Appeal reversed this finding. Justice Copeland, writing for the unanimous panel, explained that sections 60 and 61 of the Employment Standards Act must be read together. Section 60 prohibits an employer from altering any term or condition of employment during a statutory notice period. Section 61, which governs pay in lieu of notice, requires that the lump sum payment match what the employee would have earned had they remained employed throughout that notice period. Therefore, an employer cannot use a pay-in-lieu-of-notice structure to bypass the protections guaranteed by section 60.

Implications for Employers and Compensation Plans

Legal experts note that this decision imposes higher risks on employers who use equity forfeiture clauses. Because the court classified the RSU grants as a term or condition of employment, they are shielded during the statutory notice period. The court dismissed the idea that these clauses could be isolated in separate agreements. Even if an RSU grant originates from a corporate acquisition or a commercial transaction, if the parties structure it as part of an employment compensation package, the Employment Standards Act applies.

This ruling essentially means that employers must be careful with how they draft incentive plans for staff in Ontario. Contracts that automatically cancel unvested equity upon termination are now clearly vulnerable to legal challenge. The court awarded Dr. Wigdor approximately USD4.7 million to account for the RSUs that should have vested during his ten-month reasonable notice period. Moving forward, human resources and legal departments should audit their existing equity agreements to determine if they conflict with these updated interpretations of provincial employment law.