Ontario Court of Appeal Denies Employee’s Claim for Vested Stock Units
In its recent decision in Preston v. Cervus Equipment Corporation, the Ontario Court of Appeal overturned the motion judge’s decision and found the wrongful dismissal settlement precluded the employee’s entitlement to vested stock units, despite these units automatically vesting upon termination under the company’s deferred share plan for employees.
The plaintiff, Mr. Preston, had been an employee with Cervus Equipment Corporation from 2014-2018. During his employment, he participated in Cervus’ Deferred Share Plan, which enabled him to apply $20,000 of his annual bonus towards the purchase of stock units that would immediately vest. The plan provided that upon termination, vested stock units would be automatically redeemed.
Mr. Preston was terminated without cause on January 9, 2018. At the time, the value of his vested stock units was $75,949.81. On termination, Mr. Preston received a letter from Cervus advising that his vested stock units could be exercised in accordance with the plan and that he would receive a severance package of 15 weeks’ pay in lieu of notice. Mr. Preston was not satisfied with this amount and commenced an action for damages in lieu of reasonable notice including any applicable bonus during the notice period. However, there was no claim for vested stock units.
The wrongful dismissal action was settled for $100,557.12. One day before the settlement documents were signed by Cervus, Mr. Preston emailed Cervus requesting that his vested stock units be paid out. Cervus took the position that Mr. Preston had released his claim to the vested stock units under the settlement.
Mr. Preston started the action below as a new proceeding to seek damages for the value of the vested stock units. Mr. Preston and Cervus both moved for summary judgment. The issue was whether the settlement documents covered Mr. Preston’s vested stock units. Mr. Preston argued that the settlement documents did not address the vested stock units as they were not part of the wrongful dismissal action and were already his property. Cervus submitted that the entitlement to the vested stock units was released when the wrongful dismissal action was settled. The motion judge found that the vested stock units were not released under the settlement. He concluded that the wrongful dismissal action did not include a claim for stock units and that those units were automatically redeemed on Mr. Preston’s termination. The motion judge awarded Mr. Preston judgment in the amount of $75,949.81.
Cervus’ appealed the motion judge’s decision and, in overturning the decision below and dismissing the plaintiff’s claim, the Court of Appeal found the motion judge made three extricable legal errors:
1) The motion judge erred by allowing his interpretation of the factual matrix to overwhelm the actual wording of the settlement documents and effectively rewrote the contract between the parties;
2) The motion judge’s reliance that broad releases may be narrowly construed was misplaced in this case. The language regarding the release to claims for stock options and other share awards was specific; and
3) It was not the province of a judge interpreting minutes of settlement to evaluate the economic benefits conferred under the settlement.
The Court of Appeal found that the settlement documents should be given their ordinary meaning, which included a release of any payments to be made under the company plan, and found that the action by the former employee should be dismissed.
This decision serves as a reminder that the courts will not rewrite the terms of a settlement to the benefit of a party. The Court of Appeal recognized that the settlement documents intended to be final and emphasized the binding effect of clear release language. This decision highlights the importance of carefully drafting settlement agreements to ensure all outstanding claims are properly addressed or to make sure that the settlement documents properly reflect the situation if it is intended to exclude particular claims from a settlement.
