Hidden Harsh Termination Clause Voids Contract

By Lewis Waring, Paralegal, Studen-at-Law, Editor, First Reference Inc.

In Battiston v Microsoft Canada Inc (“Microsoft”), an employee was wrongfully dismissed because his employer had failed to bring a harsh termination clause to his attention. The Ontario Superior Court of Justice’s decision in Microsoft resulted from a combination of the fact that the clause was relatively harsh as well as the fact that the employer had buried the clause deep within his employment contract and failed to sufficiently notify the employee of its contents.

The employer, in this case, was Microsoft Canada Inc, a subsidiary of Microsoft Corp, a global computer software and hardware company. The employee in Microsoft, Fransic Battiston, worked for Microsoft Canada for 23 years, working his way up to the position of Business and Operations Manager, Consulting and Support, until he was terminated without cause on August 10, 2018. During his employment by Microsoft Canada, the employee had received a compensation package that included a base salary, benefits with merit increases, as well as a cash bonus and stock awards. The employee’s bonuses and stock award accounted for about 30 percent of his total compensation.

What happened?

Despite having a history of positive reviews from previous supervisors, in 2017 the employee came under the supervision of a new manager that began giving him negative reviews. In a series of meetings with his new supervisor, the employee was told that he had been receiving negative reviews, failing to demonstrate value to business partners, and failing to incorporate criticism of his shortcomings. Soon afterwards, the employee’s role was eliminated and, after being told by his supervisor that he had performed “below expectations,” he was dismissed without cause and offered $399,922.92, compensation equivalent to 101.81 weeks of notice. In response, the employee filed an application of wrongful dismissal against Microsoft Canada.

The employee’s bonus

The most interesting issue in Microsoft was the question of the employee’s right to vest stock awards that had been earned but not vested as of the last day at the office. Every year, Microsoft Canada had sent the employee e-mails which reminded him to vest his earned stock awards and included a statement 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” (at para 51). The employee received these e-mails and clicked where required to vest his stocks but never in fact read them. At the time of his dismissal, the employee had 1,057 stock awards which he had not yet vested.

The employee’s contract

Microsoft Canada’s “Stock Award Agreement” stated that

“in the event of termination of Awardee’s Continuous Status as Participant […] Awardee’s rights under this Award Agreement in any unvested [Stock Awards] shall terminate.” The agreement also stated that “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” and furthermore that “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” (at para 55).

The Stock Award Agreement thus removed any and all rights to stock awards which an employee had not vested at the day he or she was no longer performing work for Microsoft Canada. In other words, the employee’s unvested stock awards were removed the moment that an employee was handed a termination letter regardless of any right to notice of dismissal. The main issue in Microsoft thus was whether this portion of their employment contract with the employee was legal under Ontario law.

Decision

The Superior Court of Justice struck down the termination clause and awarded the employee a hefty award which represented the amount of compensation he would have earned during his notice period, determined to be 23 ¾ months. Namely, the employee in Microsoft was awarded $238,306.00 for wages, $12,100.00 plus interest for his annual cash bonus, $2,000.00 for health and dental benefits, $6,250.00 for his contributions to RRSP and a yet-to-be-determined amount of compensation equivalent to the granted stock award which would have vested during his notice period had he not been terminated.

One of the main reasons that the employee was found to have been wrongfully dismissed was based on the harsh contents of the Stock Award Agreement. That Agreement, which removed the employee’s right to vest his stock awards after being terminated without cause, was extraordinarily harsh because it essentially removed the employee’s right to an integral part of his compensation package during his notice period. Although not illegal in and of itself, the harshness of the Agreement was key to the employee’s wrongful dismissal.

The other main reason that the employee was found to have been wrongfully dismissed was the failure of Microsoft to notify the employee of that harsh clause. Although the clause was included in the Stock Award Agreement, it was buried deep within the document and virtually unreadable without a lawyer. Also, although the employer had informed the employee yearly by e-mail of the restriction on vesting stock awards in the future, such e-mail notifications were not enough. As a result, Microsoft Canada had failed to notify the employee of an especially harsh aspect of his employment contract. In other words, the Superior Court of Justice found that the employer had not fulfilled its duty to ensure that the employee had been given a fair chance to learn about the rules that would apply if he was terminated without cause.

Takeaway

Microsoft signals what could be a new trend in employment law in Ontario. In this decision, the Superior Court of Justice decided that a harsh termination clause can be struck down if it is not sufficiently brought to the attention of the employee. Although it is not necessarily true that a clause can be struck down based on its harshness alone, Microsoft suggests that a harsh clause is more likely to be struck down when it is not brought to the attention of employees. Furthermore, merely giving notice is not enough. Employers are required to give an employee what a court finds to be sufficient notice. In this case, the fact that the termination clause was buried deep within a contract laden with legalese and that the employee was only warned of that harsh clause through yearly e-mails, combined with the harsh nature of the clause, led to the Superior Court of Justice finding that the employee was entitled to the unvested stock awards and that he had thus been wrongfully dismissed.

Employers should take from Microsoft a lesson about drafting employment contracts, especially termination clauses. Termination clauses, which limit the compensation an employee is entitled to in the event of a dismissal, are taken very seriously by Ontario courts. Attempts to disguise or hide the contents of a termination clause, according to Microsoft, may lead to a finding of wrongful dismissal.

Thus the lesson from Microsoft is to make sure that employees are made aware of the contents of their employment contracts before signing. Although it may be tempting to avoid difficult conversations about events such as termination and limitations of compensation during notice periods, Ontario courts have signalled that any sleight-of-hand when it comes to drafting and signing contracts will not be tolerated and may result in substantial costs in damages for Ontario employers.