When Bonuses, Stock Options, and Severance Collide

Written on behalf of Peter McSherry

Wrongful dismissal cases often focus on salary and the length of the reasonable notice period. However, for many employees, compensation is not limited to base pay. Bonuses, restricted stock units, share options, benefits, and other incentive-based compensation can make up a significant part of total earnings.

The Ontario Superior Court of Justice’s decision in Khatib v. GoEasy Ltd., 2026 ONSC 3513, provides a detailed look at how courts may approach these issues after a without-cause termination. The case involved a senior employee who claimed damages for wrongful dismissal, including short-term incentive payments, long-term incentive plan benefits, tax gross-up, and additional damages for alleged bad faith conduct.

For employees in Ontario, the case is a useful reminder that compensation language matters. It also shows how termination provisions, bonus plans, and equity documents can become central issues when employment ends.

The Employee’s Role and Termination

The employee began working for the employer in 2016 as a Senior Vice President. He was dismissed without cause in October 2019 after approximately three years and five months of service.

After termination, the employee brought a wrongful dismissal claim. He sought 12 months’ notice, payment of his bonus for 2019, a pro-rated bonus for the balance of the notice period, and damages for restricted stock units and share options under the employer’s long-term incentive plan.

He also claimed bad faith, punitive, and moral damages. One of his arguments was that the employer had induced him to leave secure employment, which should increase the reasonable notice period.

Was the Employee Induced to Leave His Former Job?

The employee argued that he had been happy in his previous role, was not seeking new work, and had been recruited for the new position. He also said the employer improved the offer during negotiations, including by increasing the equity portion of the compensation package.

The Court did not accept the inducement argument. It noted that the employee had been with his previous employer for only about two years and had a work history involving several positions of relatively limited duration. The employer had also considered a number of candidates for the role, which weakened the argument that it had been determined to hire this particular employee at almost any cost.

The Court also considered the employment agreement’s non-inducement clause. While a clause of that kind will not automatically defeat an inducement claim in every case, the Court found it relevant in these circumstances. The employee was a seasoned professional who negotiated terms of employment and secured concessions before accepting the role.

Reasonable Notice Set at Eight Months

The employee sought at least 12 months’ notice. The employer argued for six months. The Court fixed the reasonable notice period at eight months.

In reaching that conclusion, the Court considered the usual reasonable notice factors, including the character of employment, length of service, age, and availability of similar employment. The employee held a senior management role and had important responsibilities, which supported a somewhat longer notice period.

However, the Court did not accept that the role was as exceptional in scope as the employee argued. His length of service was neither especially short nor especially long. He was 46 years old when dismissed, and he found comparable employment within a few months. The Court also found that his later employment challenges were not sufficiently connected to the employer’s termination decision.

Bonus Entitlements During the Notice Period

A key issue was whether the employee was entitled to receive his short-term incentive plan payments during the reasonable notice period.

The employment agreement stated that the employee was eligible to participate in the short-term incentive plan, with a target annual bonus of 40% of base salary, subject to company and individual performance goals. The employer argued that the plan required active employment at the time of payout and that the employee was therefore not entitled to the bonus after termination.

The Court found that the bonus was an integral part of the employee’s compensation. The employee had received bonuses each year; there was no evidence that he had been denied a bonus, and the bonus formed a significant part of his overall compensation.

The Court also found that the employer had not proven that the employee received the short-term incentive plan document containing the forfeiture language when he was hired. As a result, the plan language did not override the employment agreement. The employee was awarded his bonus for the full notice period, calculated at 40% of his base salary.

Why Long-Term Incentives Became the Central Issue

The most complex part of the decision involved the employee’s long-term incentive plan. The employee had received restricted stock units and share options during his employment. Some vested during the notice period, while others remained unvested.

The employer argued that the grant documents were separate contracts and that their forfeiture provisions prevented the employee from claiming compensation for the units and options after termination. The employee argued that he had not clearly agreed to lose those benefits and that the employment agreement did not deprive him of his rights upon termination.

The Court found that the grant documents did constitute additional agreements related to the long-term incentive plan. However, the Court also found that the termination and forfeiture language was not clear enough to deprive the employee of his entitlements during the reasonable notice period.

Ambiguity in Termination Language Matters

One important issue was the meaning of “Termination Date” in the grant documents. The forfeiture language stated that the employee’s rights would end on the termination date, but that term was not defined in the documents. The employer’s witness could not identify a definition in the grant documents, and the employment agreement did not resolve the issue.

The Court found that this created ambiguity about whether the termination date included the reasonable notice period. Because ambiguous employment language is generally interpreted against the party that drafted it, the ambiguity benefited the employee.

The result was significant. The Court found that the employee’s basic entitlement to restricted stock units and share options continued through the eight-month notice period. Any long-term incentives that vested by the end of that period had to be valued. The employee was also entitled to the pro-rated value of certain unvested grants during the notice period.

Pro-Rated Vesting of Unvested Incentives

The Court also considered whether the employee was entitled to pro-rated vesting for long-term incentives that had not fully vested by the end of the notice period.

The employer argued that unvested equity was tied to continued employment and was meant to encourage retention. The Court accepted that incentive plans can serve that purpose, but it emphasized that the employer had not relied on clear and enforceable language that removed the employee’s rights.

The employment agreement stated that the employee was eligible to participate in the long-term incentive plan. It did not clearly explain what would happen to unvested grants on termination. The Court found that, given the lack of clear termination language and the unenforceability of the forfeiture provisions, the employee was entitled to pro-rated value for unvested long-term incentive grants during the reasonable notice period.

For employees, this aspect of the decision underscores the importance of reviewing all documents related to compensation, including employment agreements, incentive plans, grant letters, and subsequent amendments.

No Tax Gross-Up Awarded

The employee also sought a tax gross-up. He argued that damages awarded after trial could be taxed differently than the income or equity compensation they were intended to replace.

The Court declined to award a gross-up. It found that the damages being claimed would have been taxed as income in the ordinary course. Since the employee’s base salary already placed him in the highest marginal tax rate, the Court was not persuaded that a gross-up was appropriate.

This part of the decision shows that tax gross-up claims are fact-specific. They may be available in some circumstances, but they are not automatic in wrongful dismissal cases.

Benefits During the Notice Period

The employee claimed damages for health and dental benefits during the notice period. The employer had continued his benefits for six months, while the Court found that the reasonable notice period was eight months.

The employee had also obtained new employment with benefits during part of the notice period. The Court found that the employer remained responsible for the full eight-month period, but that mitigation had to be considered. After calculating the value of benefits and offsetting the value of benefits received through the new employer, the Court awarded a small additional amount.

No Bad Faith, Moral, or Punitive Damages

The employee claimed at least $100,000 in additional damages. He alleged that the employer acted unfairly by refusing to pay certain incentive amounts without a release, treating him differently from other employees, delaying expense reimbursement, and advancing a counterclaim.

The Court dismissed the claims for bad faith, moral, and punitive damages. It found that the employer’s conduct was not perfect, but did not meet the legal threshold for additional damages.

The Court was not persuaded that the employer acted in bad faith by relying on incentive plan provisions, even though some of those provisions were ultimately found not to defeat the employee’s claims. Nor did the Court find that different severance arrangements for other employees supported an additional damages award in this case.

What Employees Can Take from the Decision

This decision does not mean that every terminated employee will receive bonuses, stock options, restricted stock units, or pro-rated incentive compensation during a notice period. Each case depends on the employment agreement, plan documents, grant letters, compensation history, and the facts surrounding termination.

However, the case reinforces several important points for Ontario employees. Compensation during the notice period can include more than salary. Bonus and incentive compensation may be recoverable where it is an integral part of the employee’s compensation and where the employer has not clearly and lawfully removed that entitlement.

The case also shows that employers bear responsibility for clear drafting. Where plan language is ambiguous, undefined, or not properly brought to the employee’s attention, the employee may have arguments that compensation should continue through the reasonable notice period.

Compensation Documents Deserve Careful Review

Many employees sign an initial employment agreement and later receive separate plan documents, stock grants, bonus policies, or equity letters. These documents may not always use the same wording. They may also contain termination language that attempts to limit rights after dismissal.

When employment ends, those documents can become highly important. The wording may affect whether an employee can claim compensation for bonuses, vested equity, unvested equity, benefits, or other forms of remuneration.

Khatib v. GoEasy Ltd. is a reminder that wrongful dismissal damages are not always limited to base salary. For employees whose compensation includes incentive pay or equity-based awards, the financial stakes can be substantial.

Guelph Employment Lawyer for Executive Severance and Bonus Disputes

If your employment has been terminated in Ontario and your compensation included a bonus, commission structure, stock options, restricted share units, long-term incentive plan, benefits, or other variable pay, an Ontario employee-side employment law firm can help you understand how your compensation documents may affect your severance package. Peter A. McSherry Employment Lawyer assists employees in Guelph, surrounding areas, and across Ontario with wrongful dismissal claims, severance reviews, executive compensation disputes, bonus entitlement issues, and termination package negotiations. Contact our Guelph employment law team by visiting our contact page or calling 519-821-5465 to discuss your employment agreement, incentive plan documents, and potential entitlements after termination.