Is it “good enough” when an employee accepts the terms of a stock option plan without actually reading it, or does an employer have to do more in order to bring the terms to their attention?

The Superior Court of Justice’s decision in Battiston v Microsoft Canada Inc suggested that it would not be good enough, and allowed the employee to escape the consequences of the plan. However, in welcome news for employers, the Ontario Court of Appeal overturned that decision and found that the employee was bound by the terms of the plan they chose not to read.

This is a welcome decision for employers as it shows an employee cannot agree to the terms of a variable compensation plan and later on say “I simply clicked ‘accept’ but did not read the terms“. Since the trial decision was released, there was a widespread view that many compensation plans would not be enforceable even if the employee accepted them, if the employee could show that they had not actually read them. This decision confirms that as long as the plan is otherwise unambiguous, providing notice of any changes to the employee is sufficient, and if they choose not to read, they do so at their own peril.

That said, employers must still be careful as any ambiguity will be read in favour of the employee, since the employer is typically the one drafting such provisions.

So what happened in this case?

Background

Each year, the employer sent an email to the employee asking him to confirm his acceptance and acknowledgment of the plan. The plan clearly stated that unvested awards would be forfeited on termination of employment, whether with or without cause. However, the employee argued he simply clicked “accept” and did not actually read the terms limiting his entitlements upon termination.

Interestingly, the Ontario Superior Court of Justice held that despite clear language ousting the employee’s rights, the employer had failed to bring the “harsh and oppressive” terms to the employee’s attention and therefore the plan could not be relied upon to limit the employee’s entitlements.

The lower court decision made many lawyers in the employment bar (including us) conclude that in addition to absolutely clear wording, an employer would have to explicitly bring such clauses to the employee’s attention in order to avoid having to pay out.

However, Microsoft appealed and won.

Court of Appeal Decision

The Ontario Court of Appeal held that the trial judge erred by concluding that the termination provisions were not brought to the employee’s attention by Microsoft, because:

  1. The employee “expressly agreed to the terms of the agreement” for 16 years,
  2. He made “a conscious decision not to read the agreement despite indicating that he did read it by clicking the box confirming such”, and
  3. “By misrepresenting his assent to the [employer], he put himself in a better position than an employee who did not misrepresent, thereby taking advantage of his own wrong”.

Based on the above, the Court concluded that the trial judge erred by finding the employee received no notice.

Takeaways

While this decision is a good one for employers, employers would be wise to proactively minimize potential liability. In particular, employers should carefully draft and implement stock options and related plans so that they are clear and unambiguous, provide adequate notice of such plans to employees, and ensure the notice to the employee is well-documented in order to minimize potential liability. If you are an employer, we would be happy to assist you draft and implement such plans.

Similarly, if you are an employee, do not assume your entitlements are limited simply because your employer said so. We would be happy to review your agreements, advise you about your rights, and seek what you are entitled to.

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