Many employers assume equity plans play by different rules.
Different from employment contracts.
Different from termination clauses.
Different from Employment Standards Act (“ESA”) analysis.
A recent Ontario decision suggests otherwise, and the implications are significant for employers who rely on equity‑based compensation.
In Liggett v. Veeva Software Systems, Inc. and Veeva Systems Inc., the Court confirmed that restricted share unit (RSU) termination provisions are analyzed using the same legal framework as traditional termination clauses. If a termination clause fails ESA scrutiny, equity language that limits compensation during the notice period may fail as well.
For employers, this decision reinforces a critical point: equity plans are not insulated from employment law risk.
The Court’s Core Message: Equity Is Still Compensation
The key takeaway from Liggett is relatively straightforward (but not uncontested). When equity compensation forms part of an employee’s remuneration, courts will analyze forfeiture provisions using the same principles that apply to salary, bonuses, and other compensation.
Justice Des Rosiers stated clearly:
“It is incumbent on employers to state clearly to the employees what will happen upon termination… language that violates the ESA voids the termination clauses because employees may be misled as to their entitlement and not recognize that they are forfeiting rights the common law gives them. I conclude that a similar approach must be used in interpreting contractual language that seeks to deprive employees of bonus or stock options to which they would have been available during the notice period.”
(Liggett v. Veeva Software Systems, Inc., at para 54)
The Court rejected the idea that employers can avoid scrutiny simply because a forfeiture clause appears in an equity plan rather than the employment agreement itself. If the clause affects compensation during the notice period, it will be reviewed through the same ESA‑compliance lens.
ESA Compliance Is Not Optional, Even in Equity Plans
Ontario courts have consistently held that termination clauses must clearly comply with the ESA. Any ambiguity that could mislead an employee about their minimum statutory entitlements risks rendering the clause unenforceable.
Liggett confirms that this principle extends to equity plans. If RSU language attempts to cut off vesting or entitlement as of the last day worked, without properly accounting for statutory notice or pay in lieu, it may be vulnerable to challenge.
Complexity Is Not a Defence
The Court was also critical of the structure and readability of the agreement itself. Justice Des Rosiers observed:
“The contract is particularly convoluted in its format and readability… To understand the applicable clause requires a cutting and pasting between different sections of a lengthy contract.”
(Liggett, at para 52)
This observation should resonate with many Canadian employers.
Small and mid‑sized organizations (even large ones) often rely on:
- Template equity plans from U.S. parent companies
- Investor‑driven documents
- Multi‑jurisdictional global plans drafted for multiple legal regimes
While these documents may satisfy corporate or investor expectations, they create risk when applied to Canadian employees. Courts expect clarity, especially where employees are being asked to give up valuable common‑law or statutory rights.
Complexity does not shield employers from liability. In fact, it may do the opposite.
A Potential Shift? The Pending Wigdor Appeal
The decision also raises an interesting contrast with Wigdor v. Facebook Canada Ltd., 2025 ONSC 4861, which some commentators suggest reflects a different analytical approach to equity forfeiture.
Notably, the Ontario Court of Appeal is scheduled to hear the Wigdor appeal in April of 2026. That decision may provide further guidance on how equity plans interact with common‑law notice entitlements.
Until then, Liggett signals that courts are prepared to apply strict scrutiny to equity language, particularly where ESA compliance is in question.
The Strategic Takeaway
Liggett v. Veeva Software Systems, Inc. confirms that RSU clauses are not special and they are not immune. Courts will analyze them using the same playbook applied to termination clauses generally.
For employers, the message is clear: if your termination clause would fail ESA scrutiny, your equity plan may be exposed as well.
Clarity, compliance, and careful drafting remain the best risk‑management tools available.
A quick review today can prevent a costly surprise tomorrow. Contact us.
