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Turning a blind eye? Employees cannot escape terms of employment agreements

In a recent decision, the Ontario Court of Appeal held that an employee who agreed to employment terms that he never read was sufficiently informed by his employer about their contents.

In Battiston v Microsoft Canada Inc, a terminated employee (“the Respondent”) brought an action for wrongful dismissal and unvested stock awards after he was terminated without cause by Microsoft Canada (“the Employer”). As part of Microsoft’s rewards policy, employees such as the Respondent were informed about their stock awards by way of an email outlining the process of acceptance.

The email in question required each recipient to indicate that they had read, understood, and accepted the Stock Award Agreement (“the Agreement”). The email also explained that failing to read the terms and conditions could result in employees being prevented from claiming stock awards at a later time.

As will become clear shortly, this is precisely what happened to the Respondent.

Over the span of 16 years, the Respondent received this email on an annual basis. In spite of the fact that he never reviewed the Agreement, he nevertheless clicked a box within the email indicating that he had read its contents.

Had the Respondent read the Agreement, as he was advised to do, he would have discovered that any unvested stock awards would not vest if his employment was terminated. Naturally, the Respondent had no knowledge about the effect that his termination would have on the stocks, and believed that he was entitled to those awards following his dismissal.

In a previous court proceeding, the trial judge determined that the Respondent was indeed entitled to the aforementioned stock awards. More specifically, the trial judge held that the Employer failed to sufficiently draw the termination provisions to the Respondent’s attention. The trial judge also found the termination provisions to be harsh and oppressive, and thus determined that the Stock Award Agreement was unenforceable.

Microsoft eventually appealed this decision to the Ontario Court of Appeal.

Employee benefits and contractual terms

Generally speaking, an employee’s claim for wrongful dismissal damages will encompass all of the compensation, benefits, and bonuses (including “stock awards”) that they would have been entitled to during their notice period.

The ways in which employers notify employees of their entitlement to such benefits is critical. As a starting point, if an employee enters into an agreement with their employer by signing a contract, it is well established that the employment relationship will be guided by the terms of that agreement.

However, employers also need to understand that the failure to draw an employee’s attention to certain terms of the employment contract may result in a signed agreement being deemed “unenforceable.” While an employee’s signature may suggest that they have read all important contractual terms, the courts will be vigilant in ensuring that employers have not imposed harsh and oppressive terms on unsuspecting employees.

In some cases, the courts have barred employers from relying upon contractual preconditions to obtaining bonus payments in situations where they were found to have insufficiently communicated such terms to employees.

Fortunately for Microsoft, that was not what happened in this case.

Court of Appeal decision

After considering Microsoft’s efforts in notifying employees about how their termination would affect unvested stocks, as well as the Respondent’s blind acceptance of such notification, the Court of Appeal came to a different conclusion than the trial judge in the first proceeding.

The Court of Appeal determined that Microsoft had done a sufficient job in drawing the Respondent’s attention to the termination provisions, and focused on three main considerations:

1. Without fail, the Respondent agreed to the terms of the Stock Award Agreement for a period of 16 years.
2. In spite of the fact that he never took the time to read the terms of the Agreement, the Respondent made a conscious decision to demonstrate that he did by clicking the box indicating his acceptance.
3. By misrepresenting his acceptance of the Agreement, the Respondent sought to take advantage of his own misconduct and place himself in a better position than other Microsoft employees who did not make false statements to their employer.

For these reasons, the Court of Appeal found that the trial judge had erred in declaring the Agreement was unenforceable.

The bottom line

Though Microsoft received a favorable result in this case, employers need to understand the importance of properly notifying employees of their entitlement to benefits, and when such entitlements will be restricted.

Accordingly, employers should obtain expert legal advice when drafting employment contracts, as well as any other agreements that will impact employee benefits.

John Hyde is the managing partner at Hyde HR Law in Toronto. He advises management on all aspects of employment and labour law, including representation before administrative tribunals, collective agreement negotiation, arbitrations, wrongful dismissal defence and human rights.