When Clear Drafting Is Not Enough: Ontario Court of Appeal Considers RSU Forfeiture Provisions
On August 7, 2026, the Ontario Court of Appeal released its decision in Wigdor v. Facebook Canada Ltd., 2026 ONCA 572, which, inter alia, held that provisions in a Restricted Stock Unit (“RSU”) award agreement that purported to terminate the vesting of RSUs immediately upon termination of employment contravene the Employment Standards Act, 2000 (the “ESA”). This Sidebar provides an overview of the decision and will be of interest to employers who offer equity-based compensation programs to Canadian employees.
Background
Dr. Daniel Wigdor is a professor at the University of Toronto. In 2011, he founded Chatham Inc. (“Chatham”), a technology consulting business. In 2020, he sold Chatham to Meta and, as part of that transaction, became an employee of Meta’s Canadian subsidiary, Facebook Canada.
Dr. Wigdor’s compensation was documented across three related instruments, namely an employment agreement, a letter incorporated within the employment agreement, and Meta’s 2012 Equity Incentive Plan (the “Plan”). Dr. Wigdor received four grants of RSUs pursuant to four RSU award agreements, one each for 2020 through 2023. The Plan provided for quarterly vesting of RSUs over a four-year schedule. The terms of each award agreement then set out specific terms, including the forfeiture provision at issue. The award agreements provided that all unvested RSUs would be forfeited on termination of employment. The 2020 award agreement went further, stating that no vesting would continue during any notice period “whether specified under contract or statutorily, regulatory or common law.” The 2021–2023 award agreements replaced that language with a saving clause, providing that forfeiture would apply “unless explicitly required by applicable legislation.”
Facebook Canada terminated Dr. Wigdor’s employment without cause on December 4, 2023. He was offered a termination package in exchange for a release. Dr. Wigdor declined the package because it did not provide for continuing vesting of RSUs. Dr. Wigdor commenced a claim against Facebook Canada claiming the value of RSUs that would have vested during his common law reasonable notice period. The application judge dismissed that claim; the Court of Appeal reversed on this issue.
The Court of Appeal’s Decision
The Court of Appeal held that the RSU forfeiture provisions in the award agreements were unenforceable. The Court’s conclusion rested on several related findings:
- ESA Requirements: Section 60(1)(a) of the ESA provides that during the statutory notice period an employer “shall not reduce the employee’s wage rate or alter any other term or condition of employment.” Section 61(1)(a) permits pay in lieu of notice but requires a lump sum “equal to the amount the employee would have been entitled to receive under section 60 had notice been given in accordance with that section.” The Court held that pay in lieu must therefore be calculated as though no term or condition of employment was altered during the statutory notice period, placing the employee in the same financial position whether terminated with working notice or with pay in lieu.
- RSU entitlements are a “term or condition of employment”: The RSUs were incorporated into the employment agreement and formed part of Dr. Wigdor’s compensation. RSUs were intended to compensate Dr. Wigdor for continued service and promote employee retention; RSUs were described in Meta’s annual report as a “share-based employee compensation plan” and were taxed as employment income.
- The forfeiture clauses contravened the ESA: Applying the two-part test from Matthews v. Ocean Nutrition Canada Ltd.[1], the Court found that (a) but for the termination, the RSUs would have continued to vest during the notice period, and (b) the forfeiture provisions in the award agreements did not lawfully remove that entitlement. The 2020 award agreement expressly barred vesting during any notice period, in direct conflict with s. 60(1)(a) of the ESA. The 2021–2023 award agreements attempted to preserve compliance through a saving clause providing that forfeiture would apply “unless explicitly required by applicable legislation.” The Court held that the saving clause did not cure the ESA compliance issue because nothing in the ESA explicitly addresses the continued vesting of RSUs.
The Court concluded that the forfeiture clauses in all of the RSU award agreements were void because they were contrary to ESA minimum standards. The forfeiture provisions were void not because they were ambiguous or unclear, but because, however clearly written, they operated to prevent any RSUs from vesting during the statutory notice period in a manner that contravened the ESA. Rather than tailor the forfeiture clauses to meet the ESA requirements (i.e., allow for continuing vesting of the RSUs only during the statutory notice period), the Court invalidated them entirely, with the consequence that Dr. Wigdor was entitled to vesting throughout the significantly longer common law notice period. Dr. Wigdor’s damages were therefore increased by US$4,711,647.29, representing the value of the RSUs that would have vested during the 10-month common law reasonable notice period.
Key Takeaways for Employers
In light of the Wigdor decision, employers who maintain equity compensation arrangements should review the terms of the plans and award agreements – in particular the terms surrounding treatment of outstanding awards following termination of employment - and consider whether changes are necessary or desirable to limit post-termination vesting of equity compensation awards to the extent permissible under employment standards legislation.
***
If you have any questions regarding this Sidebar, please do not hesitate to call any of us – we’re here to help.
[1]Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26, sets out the framework courts apply when deciding whether a dismissed employee can recover the value of a bonus or other incentive compensation that would have accrued during the reasonable notice period. The Court asks two questions: (1) but for the termination, would the employee have been entitled to the compensation during the reasonable notice period; and (2) if so, does the wording of the plan unambiguously remove or limit that common law entitlement. In Wigdor, the first question was not in dispute, so the appeal turned on the second.
This Sidebar client update provides general information and should not be relied upon as legal advice. This publication is copyrighted by BMKP Law LLP and may not be reproduced in whole or in part in any form without the express written consent of BMKP Law LLP. ©
.png)
.png)