Case In Point

Appellate Court Finds Former Employee was Provided Notice of Agreement Terms; No Entitlement to Unvested Stock Options

Case In Point

Appellate Court Finds Former Employee was Provided Notice of Agreement Terms; No Entitlement to Unvested Stock Options

Date: October 22, 2021

In Battiston v. Microsoft Canada Inc., the Ontario Court of Appeal held that an employee who provided online acknowledgements that he had read the employer’s stock option agreement was bound by the provisions of that agreement (including the termination provisions), whether he had read them or not.

Background Facts

Mr. Battiston had been employed by Microsoft Canada Inc. for almost 23 years when his employment was terminated without cause in August 2018 due to concerns over his performance. Microsoft provided Battiston with a termination letter that included an offer of 23 ½ months of notice. He rejected this offer and initiated a wrongful dismissal action against Microsoft.

The Superior Court’s Findings

One of the main issues before the trial judge was the question of whether Battiston was entitled to the vesting of his previously awarded but unvested stock options. Awards of stock options were communicated by Microsoft every year in an email that required employees to complete an online acceptance process that included acknowledgment of having read, understood and accepted the stock award agreement. Among other things, the agreement stated:

[I]n the event of termination of Awardee’s Continuous Status as Participant […], Awardee’s rights under this Award Agreement in any unvested SAs shall terminate […] Awardee’s Continuous Status as a Participant will be considered terminated as of the date Awardee no longer is actively providing services to the Company or a Subsidiary […] Awardee’s right to vest in SAs under the Plan, if any, will terminate as of such date and will not be extended by any notice period.

Microsoft’s records showed Battiston had accepted the stock awards online for the applicable years; however, Battiston testified that he never read the agreement, given its length, nor did Microsoft ever bring the agreement’s termination provisions to his attention.

While the trial judge stated that the stock award agreement “unambiguously excludes Battiston’s right to vest his stock awards after he has been terminated without cause,” he found that the termination provisions of the stock award agreement were not brought to Battiston’s attention by Microsoft. The trial judge also held that the termination provisions of the agreement could not be enforced against Battiston because they were harsh and oppressive. As a result, Battiston was awarded damages in lieu of the 1,057 shares he had been awarded that remain unvested.

At the Court of Appeal

Microsoft appealed the Superior Court’s decision with respect to its finding that Battiston was entitled to these unvested stock options. The Court of Appeal overturned this ruling, finding the trial judge had erred in concluding that Battiston had not received notice regarding the termination provisions of the stock award agreement. The Court therefore allowed the appeal. It held that the trial judge’s conclusion failed to address the following facts, and stated:

[9] […] 1) For 16 years [Battiston] expressly agreed to the terms of the agreement.

2) [Battiston] made a conscious decision not to read the agreement despite indicating that he did read it by clicking the box confirming such.

3) By misrepresenting his assent to [Microsoft], he put himself in a better position than an employee who did not misrepresent, thereby taking advantage of his own wrong: see Berlingieri v. DeSantis (1980), 31 O.R. (2d) 1 (C.A.) at para. 18.

The Court of Appeal’s decision in Battiston will be welcome news to employers, many of whom have adopted an online process similar to Microsoft’s, requiring employees to acknowledge having read and accepted the terms of a grant agreement or incentive plan. Courts will continue to look for unambiguous language clearly limiting an employee’s entitlements during the reasonable notice period, and the manner in which the employer communicates the incentive entitlements and the terms of the plan and/or grant may also play an important role in the enforceability of the termination provisions.

Editor’s Note: On July 28, 2022, the Supreme Court of Canada denied leave to appeal this decision.

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