No Plot Twist Here: Court Finds Contractual Ambiguity, Awards Post-Termination Stock Entitlement

Bottom Line

Written contracts are one of the many tools that enable employers to minimize their legal exposure and potential liabilities. When drafted correctly, a contract can lawfully limit an employee's entitlements including post-termination bonuses and stock options. However, as a recent Court of Appeal decision demonstrates, courts will not lightly deny entitlements to bonuses and stock options during the common law notice period; courts demand language that unambiguously alters or removes an employee's rights.

Factual Background

The IMAX Corporation (the "Company") provided working notice of termination to a senior level employee (the "Employee"). Notwithstanding that the Employee had 22 years of service, the Company provided the Employee with only 6 months' notice.

The Company notified the Employee that his Restricted Share Units ("RSUs") would be cancelled and forfeited if they had not vested by the termination date. The Company supported its position by relying on terms and conditions that were set out in its incentive plan documentation (the "Plan"). Specifically, the Plan stated that if the Employee's employment terminated "for any reason other than death, Disability or for Cause", the RSUs would cease to vest and would be "cancelled immediately without consideration as of the date of termination".

The Employee sued the Company, asserting wrongful dismissal and an entitlement to 30 months' notice of termination. The Employee also claimed that his RSUs would only be cancelled and forfeited if they did not vest by the end of the 30-month notice period, as opposed to the end of the 6-month notice period provided by the Company.

Deficiencies in the Plan Language

The Employee's claims were initially decided by a single judge on a summary judgment motion. The judge found that the Employee was entitled to 24 months' notice of termination at common law. In addition, the judge rejected the Company's argument that the RSUs were cancelled and forfeited if they did not vest by the Employee's last day of active employment. Instead, the judge found that the Employee was entitled to compensation for all RSUs that would have vested as of the end of the 24-month notice period. The judge acknowledged the Plan attempted to limit the Employee's RSU entitlements following his last day of work with the Company. However, the judge found that the Plan was ambiguous and did not contain the level of clarity required to limit or remove the Employee's...