Stock Options and RSUs: Need for Statutory Compliance
The Ontario Court of Appeal decision in Wigdor v. Facebook Canada Ltd., 2026 ONCA 572 has provided important guidance on the application of the Employment Standards Act, 2000 (“ESA”) to equity-based employment compensation.
The case concerned restricted stock units (“RSUs”). Its reasoning is equally relevant to stock options and other forms of equity compensation where the entitlement is provided as remuneration for employment.
The fundamental issue is whether the particular equity entitlement is compensation arising from the employment relationship or is instead a separate shareholder investment or proprietary interest.
Where the equity entitlement is a term or condition of employment, the minimum protections of the ESA apply. An employer cannot contract out of those statutory requirements.
Precedent Case Law
A prior decision dealing with stock options during the statutory notice period was decided in 2002. Buchanan v. Geotel Communications Corp. There was little analysis supporting the court’s rejection of the employee’s ESA argument. The reasons stated simply:
They contend that the Employment Standards Act of Ontario does not give Mr. Buchanan any right to claim damages relating to the stock option agreement. I agree.
The decision was not considered in the application decision in Wigdor.
The Court of Appeal considered a related issue in Mikelsteins v. Morrison Hershfield Limited, 2019 ONCA 515.
The plaintiff had entered into a Shareholders Agreement governing his rights upon termination of employment. The agreement required him to transfer his shares following termination. Significantly, Mikelsteins had used his own funds to purchase shares in the employer’s parent company.
The Court of Appeal distinguished these shareholder rights from rights arising from employment. It stated:
The Shareholders’ Agreement does not alter any term or condition of employment. Indeed, this alternative argument repeats the same error made by the motion judge which is the conflating of Mr. Mikelsteins’ rights under his contract of employment regarding his entitlement to reasonable notice, and his rights under the Shareholders’ Agreement regarding his shares, and treating them as one and the same. They are not.
The Court continued:
Mr. Mikelsteins’ entitlement respecting the shares that he owned is determined in accordance with the terms of the Shareholders’ Agreement and only that agreement. The Employment Standards Act has no application.
The Supreme Court of Canada subsequently remitted the case to the Ontario Court of Appeal following its decision in Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26. On reconsideration, Mikelsteins v. Morrison Hershfield Limited, the Court of Appeal maintained its conclusion that the plaintiff’s rights arose from his position as a shareholder rather than as employment compensation.
That distinction remains important following Wigdor.
A 2023 Ontario decision demonstrated the importance of examining the actual nature of an equity award. Milwid v. IBM Canada Ltd., 2023 ONSC 490.
The plaintiff in Milwid had not used his own funds to purchase the equity interest. The documentation accompanying the award also described it as a form of compensation.
The court stated:
In the present case, the plaintiff did not use his own funds to purchase funds in the company. The document accompanying the plaintiff’s equity award indicated that it was a form of compensation, albeit, described as “extraordinary compensation”, and an “extraordinary item of income”.
The equity award was therefore compensation received by the plaintiff qua employee.
The outcome in Milwid ultimately depended upon the court’s conclusion that the contractual language purporting to remove the entitlement during the common law notice period was ambiguous. The Court of Appeal upheld the award. Milwid v. IBM Canada Ltd., 2023 ONCA 702.
The important point is that the existence of shares, options, RSUs or another equity instrument does not itself determine whether the ESA applies.
The nature of the particular entitlement must first be determined.
Wigdor at First Instance
The application decision in Wigdor v. Facebook Canada Ltd., 2025 ONSC 4861 considered RSUs provided to the plaintiff as part of the arrangements under which he became employed by Facebook Canada following Meta’s acquisition of his company.
The RSU agreements provided for the forfeiture of unvested RSUs following termination of employment.
The application judge concluded that the RSU rights were governed by agreements distinct from the plaintiff’s rights under his employment agreement and relied upon Mikelsteins in finding that the ESA did not apply.
The court also considered, in the alternative, whether the RSU agreements would violate the ESA had the RSUs been a term or condition of employment.
The 2020 RSU Agreement provided for the immediate cancellation of unvested RSUs. The later agreements similarly provided for forfeiture upon termination, although they contained language intended to preserve rights required by applicable legislation.
The employee relied particularly upon ss. 60 and 61 of the ESA.
Section 60(1)(a) 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 permits the employer to terminate employment immediately rather than provide working notice, provided that the employer pays:
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 application judge concluded, in substance, that an immediate termination under s. 61 required payment of wages and continuation of benefit plan contributions, but did not require compensation for the loss of the RSUs.
This conclusion created an evident problem.
If the RSUs were a term or condition of employment, the employer could not have removed that entitlement during a period of working notice because s. 60 expressly prohibits the alteration of a term or condition of employment.
It was difficult to see why an employer should be able to achieve through immediate termination what the statute prohibited it from doing during working notice.
That issue has now been resolved by the Court of Appeal.
Court of Appeal Decision in Wigdor
The Ontario Court of Appeal allowed the employee’s appeal on the RSU issue in Wigdor v. Facebook Canada Ltd., 2026 ONCA 572.
The Court concluded that the RSU forfeiture provisions violated the ESA and were unenforceable.
The decision addressed two important questions.
First, were Wigdor’s RSU entitlements a term or condition of his employment?
Second, if they were, did the statutory protection continue where the employer terminated immediately rather than giving working notice?
The Court answered both questions in the affirmative.
Sections 60 and 61 Must Be Read Together
The Court of Appeal rejected the proposition that ss. 60 and 61 create different substantive protections depending upon whether an employer gives working notice or terminates immediately with pay in lieu.
Section 60 prohibits the employer from altering a term or condition of employment during the statutory notice period.
Section 61 allows the employer to terminate immediately, but expressly requires payment of a lump sum equal to what the employee would have been entitled to receive under s. 60 had proper notice been given.
The Court held that s. 61(1)(a) must therefore be applied on the assumption that there has been no alteration of the employee’s terms or conditions of employment during the statutory notice period.
The statutory obligation is not limited simply to maintaining the employee’s wage rate and benefit plan contributions.
The reference in s. 61 to what the employee would have received under s. 60 incorporates the protection against alteration of any other term or condition of employment.
The result is logical.
An employer cannot obtain a lesser statutory obligation by terminating immediately rather than providing working notice. Otherwise, the employer could accomplish through immediate termination the very alteration of an employment term which s. 60 expressly prohibits during working notice.
The RSUs Were a Term or Condition of Employment
The Court of Appeal also rejected the conclusion that Wigdor’s RSUs were independent of his employment rights.
The RSUs were incorporated into his employment arrangements and were part of his compensation package. They vested through continued employment and served, at least in part, as an incentive for Wigdor to remain employed.
They were also characterized by Meta as employee compensation and were treated as employment income for tax purposes.
The Court concluded that Wigdor’s entitlement to RSUs was a term or condition of his employment for the purposes of s. 60(1)(a).
The contractual provisions purporting to stop vesting immediately upon termination therefore purported to alter a term or condition of employment during the statutory notice period.
They violated the ESA.
Mikelsteins Distinguished
The Court did not overrule Mikelsteins.
It distinguished that decision on its facts.
Mikelsteins involved an employee-owned engineering firm in which eligible employees could purchase shares in the parent corporation. Mikelsteins had invested his own money to acquire those shares.
His rights arose from a genuine shareholder investment.
Wigdor’s RSUs were fundamentally different. He did not purchase the RSUs with his own capital. They were granted to him as part of his compensation and vested through continued employment.
The distinction is therefore not between shares and RSUs as legal instruments.
The relevant distinction is between equity held as a separate shareholder investment and equity granted as employment compensation.
This distinction may apply equally to stock options, share awards, RSUs and similar incentive arrangements.
The name attached to the plan does not decide the issue.
Its true character does.
The Saving Provision Did Not Save the RSU Agreement
The later RSU agreements contained language intended to preserve rights “explicitly required by applicable legislation”.
This did not save the forfeiture provisions.
The ESA does not expressly state that RSUs must continue to vest during the statutory notice period. The protection arises from the broader statutory requirement that the employer not alter a term or condition of employment during that period.
The contractual reference to rights “explicitly required” by legislation was therefore narrower than the statutory protection itself.
The saving language did not cure the violation.
This is an important drafting point.
A provision which purports to preserve statutory minimum rights must actually preserve the rights which the statute provides. It cannot impose an additional requirement that the particular entitlement be expressly named in the legislation.
The Consequence of the Statutory Violation
The financial consequence of Wigdor was striking.
The statutory violation concerned the minimum ESA notice period. Once the contractual provisions purporting to terminate the RSU entitlement were found to violate the ESA, however, those provisions could not operate to exclude the employee’s common law rights.
The analysis then returned to the principles set out by the Supreme Court of Canada in Matthews.
Under Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26, the first question is whether the employee would have received the compensation had employment continued throughout the reasonable notice period.
The second question is whether the relevant agreement contains clear and unambiguous language removing or limiting that common law entitlement.
Wigdor would have received further RSUs had he remained employed throughout his 10-month reasonable notice period.
The contractual language intended to eliminate that entitlement could not be relied upon because it violated the ESA.
The Court of Appeal therefore increased his damages by US$4,711,647.29, representing the value of 9,405 RSUs which would have vested during the 10-month common law notice period.
The importance of this result extends beyond the size of the award.
A defect affecting minimum statutory rights may render ineffective a contractual limitation which was intended to apply throughout a considerably longer common law notice period.
The potential liability may therefore greatly exceed the value of the equity compensation which would have vested during the statutory notice period itself.
The Present Law
The principles which emerge from Wigdor may be summarized as follows.
The existence of a stock option, RSU, share award or other equity interest does not itself determine whether the ESA applies.
The first question is whether the entitlement is genuinely a shareholder or investment right or is instead compensation arising from employment.
Relevant considerations may include whether the employee contributed personal capital, whether the entitlement is earned or vests through continued employment, how the employer describes the award, whether it forms part of the employee’s compensation arrangements and how the entitlement is treated for tax purposes.
Where an equity entitlement is a term or condition of employment, s. 60(1)(a) protects that entitlement during the statutory notice period.
That protection applies whether the employer gives working notice or instead terminates immediately with pay in lieu. Section 61 incorporates the protections provided by s. 60.
An agreement which purports to terminate or forfeit such an employment entitlement immediately upon dismissal, including during the statutory notice period, will be unenforceable to the extent that it contracts out of the ESA.
The fact that the entitlement is expressed in a separate stock option, RSU or incentive plan does not necessarily remove it from the employment relationship.
Mikelsteins remains relevant where the equity interest represents a genuine shareholder investment acquired with the employee’s own funds. It does not establish that equity compensation generally falls outside the ESA.
Finally, once a contractual limitation is unenforceable because it violates the ESA, the employee’s common law entitlement must be determined under Matthews. The resulting damages may encompass equity compensation which would have accrued throughout the entire reasonable notice period.
Stock Options
Although Wigdor concerned RSUs, there is no principled reason to limit its reasoning to that particular form of equity compensation.
A stock option granted as part of an employee’s remuneration, particularly one earned or vested through continued service and requiring no capital contribution comparable to that in Mikelsteins, may similarly constitute a term or condition of employment.
The factual and contractual analysis remains essential.
A genuine shareholder investment and an employment incentive plan are not necessarily subject to the same statutory treatment simply because both ultimately involve shares.
The important question is the source and character of the entitlement.
Other Jurisdictions
The reasoning in Wigdor may also be relevant in other provinces where employment standards legislation contains comparable protections, although the statutory wording in each jurisdiction must be examined independently.
A recent Alberta decision considered a related equity arrangement in Lischuk v. K-Jay Electric Ltd.. Angotti J. concluded on the facts before the court that the shareholder equity plan was employment compensation.
Alberta employment standards legislation similarly regulates the continuation of employment terms during the statutory notice period and the compensation payable where working notice is not provided.
British Columbia legislation also contains statutory minimum protections relevant to termination compensation.
The precise result will necessarily depend upon the wording of the applicable statute and the nature of the particular equity arrangement.
Common Law Rights
Where there is no statutory defect, the common law analysis remains governed by Matthews.
If an equity award is an integral component of the employee’s compensation, the employee will ordinarily be entitled to damages representing what would have been received had employment continued throughout the reasonable notice period.
The plan may contractually alter that result, but the language used to remove or limit the common law entitlement must be clear and unambiguous.
The Supreme Court emphasized in Matthews that language limiting an employee’s right to incentive compensation following dismissal must be “absolutely clear and unambiguous”.
This requirement is particularly important where the incentive plan is imposed as part of the employment relationship rather than individually negotiated.
For more on Matthews, see this discussion.
Conclusion
Wigdor provides an important appellate answer to a question which had remained uncertain.
An employer cannot avoid the ESA protection of a term or condition of employment merely by choosing immediate termination rather than working notice.
Nor does the fact that compensation takes the form of an RSU, stock option or other equity interest necessarily place it outside employment standards legislation.
The first inquiry is whether the equity interest is employment compensation or a genuinely separate shareholder investment.
Once it is found to be employment compensation, the statutory minimum protections apply. A provision which purports to eliminate that entitlement during the ESA notice period risks not merely liability for the statutory period, but the loss of the contractual limitation altogether and consequent liability throughout the common law reasonable notice period.
That was the lesson of Wigdor — and at US$4.7 million, it was an expensive one.
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David Harris — Canadian Employment Law
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