What Happens To Stock Options When An Employee Is Terminated? feature image

What Happens To Stock Options When An Employee Is Terminated?

It’s pretty well known that people who are terminated without cause are entitled to notice or to have their wages paid in lieu of notice. However some jobs come with compensation outside of standard wages, such as stock options, bonuses, commissions, and more. What happens to these forms of payment when someone is terminated? This is a question recently put before the Ontario Superior Court of Justice.

The employee’s history with the employer

The employee started working with the employer in 1994. He held a number of positions since 2001 as he moved about in various president, vice president, and senior vice president roles. By January 2016 he was serving as President,  Strategic Sales. In this role, he worked on large sales deals which paid him a commission.

The employee was terminated on January 4, 2016. The letter outlining his termination stated his termination was effective as of March 31, 2016. The letter further explained that he would only be able to receive ongoing commissions and stock options up until the termination date. The employee hired his own lawyers to negotiate his termination date, but the parties were unable to come on an agreement on many terms. The court was asked to determine what the appropriate reasonable notice period should be as well as whether he should be entitled to compensation outside of his regular salary during this period.

Determining the length of reasonable notice of termination

The court looked at a number of factors, including the employees age (53), his length of time with the employer (22 years), as well as his position of senior executive. The court also looked at his income over the three years leading up to the termination. They were:

  •      2015- $1,704,603.90 CDN
  •      2014- $844,508.74 CDN
  •      2013 – $1,999,838.53 CDN

Of this, a considerable amount was paid in the forms of commissions:

  •      2015 – $393,019.59 USD
  •      2014 – $410,075.88 USD
  •      2013 – $609, 384.33 USD

The employee attempted to find new employment and took on some minor consulting engagements before finding full-time employment as the CEO of another company, though at a salary lower than his previous one. He also receives stock options with his new position, but the court noted that the value of those options are speculative.

The court determined the appropriate period of reasonable notice should be 24 months.

Vesting stocks

The court then turned to the issue of stock options and commissions. While the employment contract stated he would not receive any payment from vesting stocks after the termination period should his employment “terminates for any reason.” However, the court found that in this case, he was terminated for no reason, and that the contract was speculating about termination for cause. As a result, his termination did not trigger his disentitlement for compensation outside of his normal salary.

It is important to hire a knowledgeable employment lawyer should you find yourself terminated for any reason. The forward-thinking team at HMC Law proactively addresses the legal implications of a termination, offering exceptional advice to our clients at reasonable rates. Please reach us online or call us at 1-800-480-3534 or find us online if you have questions around issues of employment law.

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