Do all employment benefits automatically end when someone ceases to be an employee? If the benefit is a stock option, shareholding or other type of benefit involving ownership, the terms of the contract an employer makes with its employee will determine the fate of that benefit when the employment relationship comes to an end. (See Letter of the Law, Spring 2012)

A problem can typically arise when an employee is dismissed without cause. An employment agreement that clearly details when a benefit ends will determine the outcome of any disagreement between employer and employee. But if the agreement lacks sufficient clarity, courts can impose unexpected results.

Employers usually want to end employees’ entitlement to benefits in concert with employment and write contracts to that effect. However, some contracts purporting to achieve this objective have proved defective. Recent decisions have demonstrated that courts read the word “lawfully” as modifying the word “terminated” in these contracts.

In a 2009 British Columbia Court of Appeal decision, Saalfeld v. Absolute Software Corp., Ms. Saalfeld received stock options that she could exercise until her “last day” of work. She was eventually terminated without cause and given pay in lieu of notice. The share option plan defined her “last day” in respect of the date of termination. The question became whether “termination” referred only to lawful termination or whether it encompassed both lawful and unlawful termination.

The Court found that the contract referred only to lawful termination. Without express language, the Court would not conclude that the parties intended an unlawful termination to trigger the end of the employee’s right to the benefit. In the result, the Court decided that Ms. Saalfeld was entitled to exercise her stock options during the period of reasonable notice.

That result and the contract language is usefully contrasted with a 2011 Ontario Court of Appeal decision, Love v. Acuity Investment Management Inc. Mr. Love held two-per-cent of the shares of the company for which he worked, Acuity Investment Management. His contract required him to sell his shares back to the employer on the date that he “ceased to be an employee.” Like Ms. Saalfeld, Mr. Love was dismissed without cause.

He maintained that he was not required to sell his shares back to Acuity until the end of his nine-month-notice period. The Court disagreed and concluded that the phrase “ceased to be an employee” encompassed termination without cause; Mr. Love “ceased to be an employee” on the date he was unlawfully terminated. In this result, that date was the trigger date for the employer’s right to repurchase the shares and for valuing those shares.

The lesson to be derived from these cases is simple: employers need to draft clear agreements to achieve the desired end of bringing all aspects of an employment relationship to an end at the same time.