Reasons-Wigdor-v-Facebook-Canada-Ltd-et-al-July-8-2025 

The recent Ontario decision of Wigdor v Facebook has raised the issue of the ESA protections for the statutory notice period for equity derivative plans. In this instance, it considered an RSU agreement which denied RSU rights in this time period.

In the broadest dimension, the issue to be considered is whether equity derived remuneration, such as share options, share bonus or “dividend” plans, or an RSU, such as was in place in Wigdor, is a term of employment compensation or a distinct and different form of monetary reward unrelated to employment. Should it be seen as employment compensation, then the protections of the ESA will be relevant. If the converse is found, then the ESA has no application.

A further issue presented in this case, although obiter, was whether the ESA was violated, had the RSU been considered a term of employment.

Precedent Caselaw

A prior decision dealing with a similar issue involving stock options for this statutory period was decided in 2002. It is not particularly helpful, but should be noted. ¹ There was no rationale offered to support the court’s decision to deny the plaintiff’s argument. The reasons on this issue were very brief:

They ² 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.

This decision on this issue was not referenced by the court in Wigdor.

The Court of Appeal, however, came to the same conclusion in June of 2019 in Mikelstein v Morrison Herschfield. The judicial history of the case is complicated and is important to the analysis. It is reviewed momentarily.

The plaintiff had entered into a Shareholders Agreement which defined respective rights on termination of employment. This agreement mandated that the plaintiff transfer his shares 30 days following termination. Mikelstein had used his own capital to purchase his shares in the employer company. ³

The first decision allowed the common law claim for fair notice which included the RSU sum. Notably, it did not consider the statutory argument. ⁴ This is a significant issue as later case law set out the need for a factual determination of whether the RSU was truly an equity derivative plan or employment compensation. There was no such analysis on this record.  ⁵

The Court of Appeal reversed the motion decision which had awarded common law notice damages, including the RSU sum. Significantly to the point at hand, it also denied the right of the plaintiff to claim the protections of the ESA for this purpose. The appeal raised this issue even though it was not addressed in the decision under appeal. How an appellate court might consider an appeal from a decision which was not made is, to say the least, bewildering. One would expect that, given its decision on the common law claim, it would have ordered a new trial on the statutory issue.

This court distinguished the Shareholders Agreement from a term of employment. In substance, it concluded that the Shareholders Agreement was distinct from the employment relationship and hence, the ESA had no application:

My conclusion regarding the shares requires me to address an alternative argument that is advanced by Mr. Mikelsteins – namely, that the terms of the Shareholders’ Agreement violate the Employment Standards Act, 2000, S.O. 2000, c. 41 and therefore are null and void and of no effect. On this point, Mr. Mikelsteins relies on s. 60(1)(a) of the Employment Standards Act, which reads:

During a notice period under section 57 or 58, the employer,

(a) shall not reduce the employee’s wage rate or term or condition of employment.

[24]       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.

[25]      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. Mr. Mikelsteins received that to which he was contractually entitled when the appellant paid him for his shares.

This 2019 Court of Appeal decision was sent back to the Ontario Court of Appeal by the Supreme Court of Canada following its intervening 2020 decision in Matthews v Ocean Nutrition. In its second review in March of 2021, the Court of Appeal maintained its prior decision and repeated its conclusion that the rights of the plaintiff were shareholder rights and not those which were given to him as employment compensation.

This second appellate hearing was not based on the ESA protective argument, but rather reviewed solely common law rights. The Court of Appeal did note that the Supreme Court of Canada declined to consider the statutory argument in the leave application. Leave to appeal this second appellate decision was denied.

The result was a denial of the application of the ESA in a case in which it was not, on first instance, considered on its independent factual merits.

A Factual Analysis

A 2023 decision of the Ontario court, one which did not consider the statutory argument, did note that the determination of the form of compensation, be it employment or some form of derivative equity plan, is one which is factually based. ⁶ At issue was the plaintiff’s claim for the lost value of RSU for the common law notice period.  The court noted that the plaintiff had not used his funds for any form of capital contribution to the plan. Also, the decision observed that the employer had used words describing the RSU award as a form of employment compensation. The court allowed the claim for the RSU in the notice period:

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 reward was therefore a form of compensation to the plaintiff qua employee. The description notes: “The value of this Award is an extraordinary item of income, is not part of your normal or expected compensation and shall not be considered in calculating any severance, redundancy, end of service payments, bonus, long-service awards, pension, retirement or other benefits or similar payments.” The term does not expressly exclude calculating pay in lieu of notice where the employee is wrongfully terminated.

It is thus not to be presumed that the very existence of such an equity derivative plan falls within the exclusionary words of Mikelstein. Although the statutory argument was not raised in the IBM case, the need for such a factual underpinning must be considered in this analysis of the statutory protection.

The outcome of the case was determined, however, by the court’s finding that the language denying the plaintiff’s right to claim the RSU loss over the notice period was ambiguous. The Court of Appeal agreed with this finding and upheld the initial award. This issue of the factual analysis was not before the appellate court. ⁷

Wigdor v Facebook

The issues in this case were the enforceability of an employment agreement and the effectiveness of further agreements outlining respective RSU rights. The conclusion was that the employment agreement was offside the ESA and secondly, that the ESA had no application to the RSU contracts. There were two successive forms of the RSU, each of which effectively allowed the “employer” the right to deny the statutory rights relevant to the RSU on termination.

A secondary issue considered in Wigdor, was had the ESA applied, would either of the RSU agreements be offside the ESA.

Need for a Factual Review – Fish or Fowl

The court did note that the fundamental determination of whether the RSU entitlements were employment compensation or a distinct and different form of remuneration was to be determined by the wording of the agreement. This statement which follows, it is respectfully submitted, is not completely accurate, as the court should also consider all relevant surrounding facts, not only the wording of the agreement. ⁸

The treatment of employee stock holdings and stock options as part of compensation will depend on the wording of the agreements between the employer and employee:…

Essentially, the court concluded that the RSU rights were not a form of employment compensation, but rather something distinct and different from employment remuneration. ⁹ The authority given for this conclusion was the first Court of Appeal decision in Mikelstein in 2019, one which did not have a reasoned decision on the subject from the motion decision, nor any record of the factual underpinning. ¹⁰

The Applicant’s RSU rights were governed by separate agreements that are not treated the same way as his rights under his employment contract: Mikelsteins v. Morrison Hershfield Limited, 2019 ONCA 515 at para 16. I agree with the Respondents that the Applicant’s contractual entitlements were independent of any relief he may have been entitled to receive under his employment agreement, the ESA, or the common law.

Application of the ESA, had the RSU been Employment Compensation

Notwithstanding the conclusion that the ESA did not apply, the court nonetheless did review the application of the ESA to this context. ¹¹ Given the previous finding, this analysis is obiter. ¹²

The court considered the two RSU agreements, referenced as the 2020 RSU Agreement and the 2021-2023 RSU Agreements. The wording of the RSU in 2020 mandated the immediate cancellation of all unvested RSUs. The second agreement is much to the same effect, requiring that all unvested RSUs be forfeited forthwith. There was saving language added in the second RSU to show compliance with the ESA, if required. ¹³

The plaintiff had argued that the 2020 RSU Agreement violated s. 60(1) of the ESA which requires the employer to maintain all “terms and conditions of employment” during the ESA notice period. The plaintiff also submitted that each of the two RSU contracts led to the termination of RSU rights, had the termination decision been a reprisal or other prohibited termination event as protected in the ESA. ¹⁴

The relevant sections of the ESA are s. 60(1) and s. 61(1). The first reads as follows:

Requirements during notice period

60 (1) During a notice period under section 57 or 58, the employer,

(a) shall not reduce the employee’s wage rate or alter any other term or condition of employment;

(b) shall in each week pay the employee the wages the employee is entitled to receive, which in no case shall be less than his or her regular wages for a regular work week; and

(c) shall continue to make whatever benefit plan contributions would be required to be made in order to maintain the employee’s benefits under the plan until the end of the notice period.  2000, c. 41, s. 60 (1).

One might expect that had a finding been made that the RSU was a term or condition of employment, that the employer would be precluded from changing such a term. This presumes that the employer chose to terminate by the giving of working notice.

The ESA sets out the statutory obligations in two different circumstances. The first, the above s. 60(1), applies when the employer chooses to give working notice. The second is s. 61(1) which is operative when the employer elects to terminate immediately. ¹⁵ The former mandates the continuity of all terms and conditions of employment during the notice period. The second requires payment of the amounts which would have followed under s. 60, had notice been given and the continuity of “whatever benefit plan contributions” would be required.

Had the RSU been considered to be a term and condition of employment, would this lead to the conclusion that an immediate termination would deny the employee compensation for such? It strains credulity to believe this to be so, yet this is the conclusion reached in this instance.

The wording of the second section is:

61 (1) An employer may terminate the employment of an employee without notice or with less notice than is required under section 57 or 58 if the employer,

(a) pays to the employee termination pay in 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; and

(b) continues to make whatever benefit plan contributions would be required to be made in order to maintain the benefits to which the employee would have been entitled had he or she continued to be employed during the period of notice that he or she would otherwise have been entitled to receive.  2000, c. 41, s. 61 (1); 2001, c. 9, Sched. I, s. 1 (14).

The decision stated that, given such an immediate termination, the ESA requires (1) continuity of benefits and (2) wages. In neither of such obligations is included RSU compensation. This requires a payment of “termination pay…equal to the amount the employee would have been entitled to receive under section 60”. It is true that the definition of “wages” does not include RSU genre entitlements and further that RSU accruals would not be included in the definition of benefit plan contributions.

S. 60 does state that the employer must pay wages and continue benefits for the protected period. However, s. 60, as noted, also mandates the continuity of all terms and conditions of employment.

This conclusion then erases any meaning attached to the prohibition against altering “any term or condition of employment”, given an immediate termination without notice.

Furthermore, with respect, the reasons miss a pivotal point. The analysis of the question of an ESA violation requires a review of the potential of a violation. ¹⁶ The fact that the employer on these facts gave less than the required working notice and engaged s. 61(1) is of no moment to the issue. If the RSU is found to be an employment term, then there is clear potential violation of s. 60(1). It matters not what gloss the reader puts on the interplay between the two sections.

Summary

1. The fact that there is in place an RSU or any other form of equity derivative plan does not end the issue. It starts one. A factual analysis should proceed to assess whether such a remuneration plan is employment compensation or a distinct and different form of remuneration. Consideration should be given to the factual matrix in play, including whether the employee was required to fund his capital or other interest in the relevant plan, or whether the facts show that such a plan was intended to be one of compensation for employment.
2. The analysis of the ESA application in this instance is obiter. With respect, it also misses the potential violation of s. 60(1) by the apparent removal of a term and condition of employment, given such a finding.
3. The Court of Appeal decision in Mikelstein was not provided with the relevant factual underpinning which should have been allowed. It remains curiouser and curiouser how an appellate court could review a decision which was not made. A future challenge on this or a similar issue should pay heed to providing the decision maker with all relevant facts to enable them to decide whether such a plan provides employment compensation or something distinct and different.

Other Jurisdictions

A recent Alberta decision has declined to follow the Ontario line of cases as set out above.

In Lischuk v K-Jay Electric Ltd, Justice Angotti held that the shareholder equity plan must be treated as employment compensation. A more fulsome review will follow shortly.

Alberta has a similar requirement denying the employer the right to alter a term or condition of employment in the statutory notice period. Wages payable in the statutory notice period include “wages” includes salary, pay, money paid for time off instead of overtime pay, commission or remuneration for work, however calculated…”

Similar to Ontario, the employer may elect to terminate immediately and then pay the relevant “wages” for the notice period.

B.C.’s statute is to the same effect.

Failing a statutory violation, the issue will be limited to a review of the contract to determine whether it meets the standards of disclosure as set out in Matthews.

If the sum in question is integral to the compensation scheme, then the language of the plan must unambiguously limit or remove the employee’s common law rights ¹⁷ and that such a term “must be absolutely clear and unambiguous”. This was so, as in Matthews and likely most such incentive plans, the bonus scheme is one not freely negotiated but rather set out in a “unilateral contract”. Such a clause in this context which limits or excludes liability must be subject to the principle of contractual interpretation that such clauses will be “strictly construed”, a concept which applies with “particular force” in this context.

For more on Matthews, see this link.

For mediations: contact david@empl-law.com

For more Employment Law content: https://empl-law.com

 

 

 

1. Buchanan v Geotel
2. that is, the employer- ed
3. This fact was noted in the in the initial motion decision and in the second hearing before the Ontario Court of Appeal.
4. motion decision
5. Milwid v IBM
6. Milwid v IBM
7. OCA Milwid v IBM
8. Wigdor par 34 and Milwid as above
9. Wigdor par 67
10. There was a reference, as noted above, to the fact the Mikelstein contributed his own funds to acquire his shares in the initial motion decision and in the second appellate reasons.
11. Wigdor par 49-68
12. Drover v Canada
13. Wigdor par 17
14. The latter argument is based on the Dufault v Ignace Court of Appeal decision. This submission was dismissed given the finding that the RSU was not employment compensation
15. or with a lesser period than that set out in the ESA
16. Covenoho v. Pendylum
17. Matthews