Employer Liable for $1.8 million in Unpaid Bonuses and Stock Options
Some words are not worth the paper that they are printed on. But, in some cases, those words can be worth almost 1.8 million dollars. In the absence of certain express terms or clear agreements, employees can be entitled to certain benefits, such as bonuses and stock options, after termination. Employers who do not carefully restrict and manage benefit entitlements can eventually find themselves with an albatross around their neck.
In Boyer v. Callidus, 2024 ONSC 20, the plaintiff Boyer alleged that he had been constructively dismissed and that he was entitled to a deferred bonus and stock options. Although the court found that he had retired and was not constructively dismissed, in the absence of clear terms limiting his entitlements on resignation/retirement, Boyer was due his unvested bonus and stock options (he also claimed and received accrued vacation pay, which we will not address in this short article).
Deferred Bonus
Under Boyer’s bonus structure, Callidus withheld a portion of his annual bonus that would then be distributed over the following two years. As a result, after his resignation, there were amounts that had been withheld and were still unpaid. Callidus argued that it had a written Deferred Bonus Policy that stated that an employee “must be employed by [Callidus] to receive his or her principal amount of Deferred Bonus or any interest thereon.” Boyer deposed that he had never been shown the Policy and was not aware of it.
The Court found that Callidus could not rely on the Policy to limit Boyer’s entitlement because there was no evidence that he had been provided with it or advised that there would be any limitation on his entitlement to earned or deferred bonuses on termination or resignation. The Court stated that it was incumbent on Callidus to inform him of any conditions to his bonus entitlement, which it had not. Callidus was order to pay Boyer $525,000 plus 3% quarterly interest on his deferred bonuses.
Stock Options
Boyer was awarded several stock option grants, some of which were not yet vested at the time of his resignation (the “Unvested Options”). Sometime after his resignation, Callidus, which had been a publicly traded company, became a privately traded company and as a result Boyer was unable to exercise any stock options. By the time of trial, Boyer would had 126,962 Unvested Options that Callidus had refused to recognize.
Callidus had no written policy describing what would happen to an employee’s unvested stock options upon retirement. However, they had circulated a document describing its policy on stock option awards, which noted that upon an employee’s death any unvested options would vest and be exercisable within 180 days. Boyer’s evidence was that he had discussions with his superior about the document and was told that his unvested options would vest upon retirement. His superior was unable to recall the conversation. The Court found that Boyer’s evidence was credible, and so found that the confirmation became a term of his contract of employment. In other words, Boyer was entitled to have his stock options vest upon his resignation and since Callidus refused to honour that term and vest his options, the company was liable for the value of those options.
Since he could no longer exercise the options, the Court instead ordered Callidus to pay Boyer the value of those options (i.e. the difference between the option “strike price” and the then prevailing market price) on the date that Boyer stated he would have exercised those options. Boyer was awarded a shocking $1,251,945.58 for his stock options.
The award actually goes much further than prior case law which held that employees were entitled to options that would have vested during the “reasonable notice period” of termination the employer owed. In this case, the court effectively created a term of the options providing that they would continue vest on resignation. This is contrary to both employers’ understanding of the fundamental tie between the options and being employed and inconsistent with legal requirements applicable to many such options requiring they only be granted to employees.
Takeaways
Employers can learn from Callidus’ expensive mistakes by:
- Having clear written terms both in an employee’s employment agreement (or separate stock option agreement for options) and a bonus plan or stock option plan limiting or varying their entitlements to deferred vesting bonuses and options on termination or resignation;
- Where those terms are not included in an employment agreement, ensure that the relevant conditions were provided at the time of the award in writing and that the employer can prove delivery of them e.g. by producing the email sending them to the employee; and
- Even better, require employees to sign acknowledgements that they have received those written policies.
The massive award in the case above could have been avoided with some careful drafting that was then communicated in a provable manner. Since most employers do not want to have to provide deferred bonuses or options to employee who quit or who are terminated, the drafting and communication of these limitations are critical.
If you want more information on this topic, you can contact us at:
Geoffrey Howard: ghoward@howardlaw.ca
604 424-9686
Sebastian Chern: schern@howardlaw.ca
604 424-9688
