Clear restrictive language in an incentive compensation plan can hold up, even with an unenforceable termination clause
Ontario courts continue to scrutinize termination clauses in employment agreements and, more often than not, they’re striking them down. However, when it comes to restrictive language in equity compensation plans, a recent court decision drew a firmer line in favour of employers.
In a recent decision, Wigdor v. Facebook Canada Ltd., 2025 ONSC 4861 - which is being appealed - the Ontario Superior Court upheld the enforceability of limiting provisions in Meta’s (Facebook) restricted stock unit (RSU) plans, being of interest to employers navigating termination-related disputes.
The employee challenged both the validity of the termination clause and the denial of RSU compensation following termination. While the court found the termination clause unenforceable, it nevertheless upheld Meta’s right to deny RSU payouts based on the clear language in the equity agreements.
Employment contracts vs equity compensation plans
The court drew a distinction between general employment contracts and equity plans so that even when termination clauses fall short of employment standards requirements and are struck down, RSU or stock option plans with clear limiting language may still be enforced.
The court made two significant legal clarifications:
-
Section 61 of the Ontario Employment Standards Act (ESA), which addresses prohibited reprisals, does not prohibit employers from modifying or denying post-employment benefits such as RSUs. This stands in contrast to s. 60, which restricts changes to terms during the working notice period.
-
RSUs, like stock options, do not constitute “wages” under the ESA, which further strengthens an employer’s ability to limit entitlement upon termination, provided the language is precise.
Based on the court’s decision in Wigdor, employers should note the following with regards to equity compensation plans:
-
Clarity in plan language is critical: Equity plans should always clearly define eligibility, forfeiture conditions, and the impact of termination, especially for terminations without cause.
-
Separate documents, separate analysis: Don’t assume that if a termination clause is struck down, all other compensation-related clauses will be too. RSU and option plans are evaluated independently.
-
Regular reviews are key: Given how frequently termination clauses are challenged, employers should review and revise employment agreements and compensation documents in tandem to ensure alignment and enforceability.
With termination clauses under constant scrutiny, employers can still protect their interests by proper drafting and proactive legal review, particularly when it comes to long-term incentive compensation.
Ronald S. Minken is a senior lawyer and mediator at Minken Employment Lawyers, an employment law boutique in the Greater Toronto Area. Tanya (Tejpreet) Sambi is a lawyer at Minken Employment Lawyers.
