In a recent Ontario case, the court had to determine whether an employee who had been terminated was nonetheless entitled to his bonus and stock benefits.
Employee Terminated After 23 Years
The employee was employed by the employer, Microsoft Canada Inc., for almost 23 years until his termination, without cause, on August 10, 2018. At the time of his termination, the employee was 53 years old.
In addition to his base salary, the employee received yearly benefits, including merit increases, cash bonuses and stock awards under Microsoft’s Rewards Policy. These bonus payments constituted about 30% of the employee’s total compensation.
Between 2015 and 2018, the employee received the following base salary and bonuses under the Rewards Policy and stock under the Stock Plan :
|Base Salary||Merit||Cash Bonus||Stock|
|September 2015||2.5%||34,400 CDN||662 Shares – $28,800 USD|
|September 2016||1.7%||29,600 CDN||418 Shares – $24,000 USD|
|September 2017||$201,463.00||1.4%||24,200 CDN||193 Shares – $14,400 USD|
Because the employee was terminated shortly after Microsoft’s 2018 fiscal year, which ended June 30, 2018, he was advised that he would receive no merit increase and no cash bonus for the 2018 fiscal year. Microsoft also took the position that following his termination, the employee was no longer entitled to the vesting of any granted but unvested stock awards.
Length of Reasonable Notice: 24 months
First, the court determined that given the employee’s age, length of service, character of his employment, availability of similar employment and case law, he was entitled to a period of reasonable notice of 24 months.
Employee’s Entitlement to Bonuses
The court then turned to the employee’s entitlement to the bonus award during the notice period. The court explained that whether a bonus is an integral part of the employee’s compensation package turns on a consideration of (a) the bonus is received each year although in different amounts; (b) bonuses are required to remain competitive with other employers; (c) bonuses were historically awarded and the employer had never exercised its discretion against the employee; and (d) the bonus constituted a significant component of the employee’s overall compensation.
After reviewing such considerations, the court found that the merit increase and the cash bonus under the Rewards Policy were significant parts of the employee’s total income. Additionally, the court found that there was nothing in the Rewards Policy that removed the common law entitlement to receive bonuses during the notice period.
As a result, the court found that the employee was entitled to damages for the lost opportunity to earn a merit increase and cash bonus during the notice period. The court further found that the proper measure of such damages was based on the average of the amounts that were awarded for such bonuses in the two-year period preceding his termination. The employee was therefore entitled to a 0.7% annual merit increase during the notice period and an annual cash bonus of $12,100 during the notice period.
However, the court found that the employee was not entitled to a bonus award for the 2018 fiscal year.
Employee’s Entitlement to Damages for Awarded but Unvested Stock Awards
In considering the employee’s claim for stock awards, the court reviewed Microsoft’s Stock Award Agreement, which stated in part:
“Awardee’s Continuous Status as a Participant will be considered terminated as of the date Awardee no longer is actively providing services to the Company or a Subsidiary (regardless of the reason for such termination and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where Awardee is employed the terms of Awardee’s employment agreement, if any), and unless otherwise expressly provided in this Award Agreement or determined by the Company, Awardee’s right to vest in [Stock Awards] under the Plan, if any, will terminate as of such date and will not be extended by any notice period […]”
While the court found that the agreementunambiguously excluded the employee’s right to vest his stock awards after he was terminated without cause, the court also found that the agreement’s termination provisions were harsh and oppressive as they precluded the employee’s right to have unvested stock awards vest if he was terminated without cause and the provisions had not been adequately brought to the employee’s attention.
As a result, the court found that the termination provisions in the Stock Award Agreement could not be enforced against the employee and he was therefore entitled to damages in lieu of the 1,057 shares awarded that remained unvested. The court stated that those damages were to be assessed as of the date of the breaches using the closing market price for the stock on those dates.
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