The answer: Yes.<\/p>\n
How did we get here? The answer lies in the Court of Appeal for Ontario\u2019s evolving approach to this issue in recent years.<\/p>\n
A terminated employee\u2019s right to exercise stock options during the reasonable notice period has been an increasingly litigated issue that has been rife with uncertainty. Employers often take the position that the language used in these employee incentive agreements results in their cancellation on the date of termination. Unsurprisingly, employees assert entitlement to all non-discretionary remuneration that was a fundamental part of their compensation.<\/p>\n
In 2004, the Court of Appeal for Ontario released a landmark decision named Kieran v. Ingram Micro Inc<\/em><\/a>.[1]<\/a> The Court denied the employee\u2019s claim for stock option entitlements during the notice period because the employment agreement restricted these entitlements upon an employee\u2019s termination \u201cfor any reason.\u201d The Court concluded this language sufficiently encompassed the employee\u2019s without cause termination.<\/p>\n Then, in 2016, the Court released its decision of Paquette v TeraGo[2]<\/a>. <\/em>The Court held that unless the language limiting the employee\u2019s rights on termination expressly excluded payment of bonuses upon an employee\u2019s termination without cause, employees would be entitled to these payments. Therefore, a term that requires \u201cactive employment\u201d when the bonus is paid, without more, was insufficient to deprive an employee of a claim for compensation for the bonus he or she would have received during the notice period.<\/p>\n Since Paquette<\/em>, to oust entitlement to bonus payments, Courts have invoked the need for a limiting clause that expressly cancels the employee\u2019s entitlement to the remuneration in question upon dismissal without cause. However, confusion remained as to whether the Paquette<\/em> decision also applied to stock option payments.<\/p>\n In late 2019, the Court decided O’Reilly v. IMAX Corporation<\/em>[3]<\/a>, which helped to clarify an otherwise ambiguous legal patchwork of conflicting decisions. Larry O\u2019Reilly worked for IMAX for 22 years, rising to the level of President. He was dismissed on January 4, 2016. After an unsuccessful severance negotiation, Mr. O\u2019Reilly sued for wrongful dismissal and was awarded a 24 month reasonable notice period including all commissions outstanding, the pension contributions that would have been made during that period, and the value of benefits lost during the notice period. Mr. O\u2019Reilly also claimed damages for the lost opportunity to exercise options that would have vested during the reasonable notice period. IMAX appealed this last head of damages.<\/p>\n The relevant stock option plan provided for the following:<\/p>\n (a) In the event that a\u00a0Participant\u2019s<\/em>\u00a0employment, consulting arrangement or term of office with the\u00a0Company<\/em>\u00a0or one of its\u00a0Subsidiaries<\/em>\u00a0terminates for any reason, unless the\u00a0Board<\/em>\u00a0or the\u00a0Committee<\/em>\u00a0determines otherwise, any\u00a0Options<\/em>\u00a0which have not become\u00a0Vested Options<\/em>\u00a0shall terminate and be cancelled without any consideration being paid therefor.<\/p>\n In upholding the trial judge\u2019s decision, the Court held that the stock option payments were an integral part of the respondent\u2019s employment, and that they would have vested had his employment not been wrongfully terminated. Further, the Court held that the reference to \u201cterminates for any reason\u201d in the plan could not be presumed to include termination without cause. Accordingly, the plan\u2019s wording failed to clearly and expressly eliminate Mr. O\u2019Reilly\u2019s common law right to claim for all <\/em>non-discretionary remuneration that formed a fundamental part of his compensation. In light of the above jurisprudence, it appears settled in Ontario now, that the rule articulated in Paquette <\/em>applies to unvested stock options that vest during the reasonable notice period<\/a>.<\/p>\n <\/p>\n [1]<\/a> 2004 CanLII 4852<\/p>\n\n