Ontario Court of Appeal Confirms RSU Forfeiture Provisions May Violate the ESA
The Ontario Court of Appeal's decision in Wigdor v Facebook Canada Ltd., 2026 ONCA 572 is an important reminder that equity compensation arrangements must comply with the Employment Standards Act, 2000 ("ESA"). The Court of Appeal held that provisions preventing restricted stock units ("RSUs") from vesting during the statutory notice period violated the ESA and were therefore unenforceable.
The decision has significant implications for employers that offer RSUs, stock options, and other forms of equity compensation.
Background
In 2020, Meta Platforms Inc. acquired Chatham Inc. and hired its founder, Dr. Daniel Wigdor, as Facebook Canada's Director, Research Science. As part of his compensation package, Dr. Wigdor received 43,380 RSUs valued at approximately US$7.5 million, scheduled to vest over a four-year period.
When Facebook Canada terminated Dr. Wigdor's employment without cause in December 2023, it provided statutory termination and severance entitlements under the ESA but took the position that all unvested RSUs were forfeited upon termination. The RSU agreements provided that vesting ceased when employment ended and would not continue during any statutory, contractual, or common law notice period. Certain later agreements also contained saving language preserving only rights "explicitly" required by applicable legislation.
Dr. Wigdor challenged both the termination provisions in his employment agreement and the RSU forfeiture provisions. The Court found that the termination provisions violated the ESA because they failed to properly recognize Dr. Wigdor's prior service with Chatham. As a result, the provisions were unenforceable, and Dr. Wigdor was awarded ten months' common law reasonable notice. However, the Court dismissed the RSU claim, finding that the RSU forfeiture provisions were enforceable. In doing so, the Court concluded that RSUs were neither "wages" nor benefit plan contributions under the ESA and that continued vesting was not required where the employer provided pay in lieu of notice rather than working notice. Dr. Wigdor appealed that aspect of the decision.
The Court of Appeal's Decision
On appeal, the Court of Appeal overturned the lower court's decision on the RSU issue.
i. Sections 60 and 61 Must Be Read Together
The Court of Appeal held that sections 60 and 61 of the ESA operate together. Section 60 prohibits employers from altering an employee's terms and conditions of employment during the statutory notice period, while section 61 requires employers providing pay in lieu of notice to compensate employees as though working notice had been provided.
Accordingly, employees should receive the same financial protection whether they are provided with working notice or pay in lieu of notice.
ii. RSUs Were a Term or Condition of Employment
The Court of Appeal found that the RSUs formed part of Dr. Wigdor's compensation package and were therefore a term or condition of employment protected by the ESA. The RSUs were incorporated into the employment relationship, vested throughout employment, and formed part of the employee's overall compensation.
iii. The Forfeiture Provisions Were Unenforceable
Because RSU vesting formed part of Dr. Wigdor's terms and conditions of employment, the forfeiture provisions violated the ESA by eliminating that entitlement during the statutory notice period.
The Court of Appeal also held that the saving language did not cure the defect. Since the ESA does not expressly address RSU vesting, language preserving only rights "explicitly" required by legislation was insufficient.
The forfeiture provisions were therefore declared void.
Damages
Applying the Supreme Court of Canada's framework in Matthews v Ocean Nutrition Canada Ltd., the Court of Appeal found that additional RSUs would have vested during Dr. Wigdor's ten-month reasonable notice period had his employment continued.
As a result, he was awarded approximately US$4.7 million, representing the value of more than 9,400 RSUs that would have vested during the common law notice period.
Key Takeaways for Employers
• RSUs and other equity awards may constitute a term or condition of employment protected by the ESA.
• Employees are entitled to the same compensation during the statutory notice period whether they receive working notice or pay in lieu of notice.
• Forfeiture provisions that eliminate vesting immediately upon termination may be unenforceable if they contract out of ESA minimum standards.
• Generic saving language may not be sufficient to preserve an otherwise non-compliant provision.
• An unenforceable forfeiture provision can expose employers to significant liability during the common law reasonable notice period, far beyond ESA minimum entitlements.
