A legal tug-of-war over Microsoft Canada’s stock agreement has resulted in a victory for employers, but may still result in changes over how share-purchase agreements are communicated with employees.

In October, the Ontario Court of Appeal threw out a previous decision requiring companies to clearly highlight termination language in their stock agreements or risk having to pay out damages to ex-employees.

While that earlier decision had been considered a win for workers, the latest ruling may “kill” the cases of workers who tried to challenge their own stock plans and terminations over the past year, according to Rishi Bandhu, the principal lawyer at Bandhu Law Professional Corporation.

The lawsuit focused on the severance package of nearly 23-year Microsoft veteran employee Fransic Battiston. About 30 per cent of his pay came out of merit increases, cash bonuses and stock awards under Microsoft’s rewards policy. 

According to court filings, Battiston was considered a good performer by his managers and moved up the ranks in the company up until 2017, when over the course of the next year, a new manager based in Germany got some negative feedback that Battiston wasn’t taking the lead enough on projects. He was terminated “immediately” in August 2018 without cause due to his performance. 

What was not clear to Battiston at that time was that the terms and conditions within the Microsoft stock plan said that regardless of why he was fired, the stock-award agreement would end as soon as he stopped “actively providing services” to the company, and would not extend into a notice period. Human resources had the exclusive discretion to decide that date, at which point the right to vest the stock awards ended immediately.

He was “shocked” to have been fired since he was never put on a performance-improvement plan. He argued that he deserved a chance to cash in those awarded but unvested stock awards. 

At trial, a judge agreed, writing that the stock-award language was “harsh and oppressive,” even though it “unambiguously excludes Battiston’s right to vest his stock awards after he has been terminated without cause.”

The lower-court judge referenced a textbook contract-law principle that says the party submitting the contract must take reasonable steps to draw attention to a particularly harsh term—or render that part of a contract unenforceable, even if the agreement is read and signed by the other party. A yearly email announcing the awards, the trial judge wrote, was not enough to draw Battiston’s attention to the termination provisions. 

Law firms clamoured at the lower court’s decision. Norton Rose Fulbright warned it could prove costly for employers, writing that “there is a significant risk that simply providing an employee with a copy of the subject agreement to read, review, and acknowledge will not suffice.” Bennett Jones lawyers wrote that the decision suggested “steps should be taken by employers to very clearly highlight and draw these kinds of provisions to the attention of employees.” 

“There’s a lot of [companies like Microsoft] in Ontario. Other large companies have stock plans and they are probably administered in the same way,” said Bandhu. “So I think when that trial decision came out, any employee who was terminated around that time, or was expecting to be terminated, they had a very good credible argument to be able to challenge that stock plan.”

“There were definitely a lot of questions from employers,” said Tamara Ticoll, counsel in the employment and labour group at law firm Stikeman Elliott, who said an increasing number of her clients have been setting up online human-resources systems during the pandemic. After the court invalidated “click to accept” emails for full stock agreements in 2020, those clients were forced to go back and work with these systems to try and figure out a method of “sufficient notice” of stock-plan termination provisions that might satisfy the courts. “That was something we were addressing a lot with employers.”

Each year, Battiston got an email that said, “Failure to read and accept the stock award and the plan documents may prevent you from receiving shares from this stock award in the future.” 

Clicking “agree” to get those stock awards meant that Battiston “made a conscious decision not to read the agreement” despite clicking that box, the appeal judges wrote in the new ruling. 

“Any claims that employees may have had as a result of that trial decision effectively are negated now,” said Bandhu.

The case comes as a timely reminder that workers must stay on top of their vesting shares as Toronto-listed stocks hit all-time highs amid a record-setting pace of public offerings in the U.S.—and when about 50 per cent of workers are feeling underpaid, according to one study.

“If you’re at any fast-growing tech company, part of the reason to join was that upside,” said Aaron Baer, a partner at the Renno & Co law firm in Toronto, whose practice focuses on advising tech companies, but was not involved with the case.

Baer said the lower court’s decision on the stock agreement was “absurd” since Battiston had admitted to not reading the documents over many years. But he cautioned employers against getting lax with their own stock documents or termination procedures if they tightened their documents last year by asking employees to specifically sign-off or initial the termination clauses, saying that Ontario courts tend to err on the side of employees. 

Samantha Lucifora, a partner at Monkhouse Law who represented the worker in the lawsuit, said the case suggests employees must have their eyes “wide open” to what is buried in their compensation agreements.

Lucifora said many employees wrongly assume that if a standard form, like a stock agreement, isn’t open for negotiation, they don’t need to show it to a lawyer—but lawyers can catch “sneaky” provisions.

“A prevailing trend in the employment law bar is that we’re seeing more and more lawsuits where employees are challenging the legality of these plans,” she said.

Since these types of stock plans are so common, it’s good for employers to offer both extensive paper documentation and also someone in HR available to give employees a plain-language rundown of long legal documents, Baer said. 

“The case was overturned, but it was based on specific facts. So in general, the advice we give companies still is to try to make those termination provisions—what happens when you leave the company to vested options and unvested options—make those explicit,” he said.

Lawyers from Osler, Hoskin & Harcourt that represented Microsoft declined to comment, and Microsoft did not respond to a request for comment on whether it had changed its stock agreement after winning the appeal.

Baer said most legal challenges he sees of stock plans are either in early-stage startups with ill-defined agreements, or allegations that an employee is fired in bad faith right before their vesting date. There is “no downside” to orally advising new employees specifically of what will happen to their stocks if they are fired, he said.

But if employers end up needing to revise documents that trigger “fresh consideration” —lawyer-speak for having to reissue or renegotiate employment agreements and offer letters if employees are asked to comply with new terms like termination clauses—it could reopen conversations about compensation, he said.

“You never want to be in a position where someone goes to court and says, ‘Well, you didn’t do this really simple thing that doesn’t take too much time or money at all.’”