Canada: Forfeiture-On-Resignation Provision In Long-Term Incentive Plan Not A Restraint Of Trade

Is a "forfeiture-on-resignation provision" in a long-term incentive plan an unreasonable restraint of trade?  The answer is "No", according to a recent decision of the Ontario Superior Court of Justice in Levinsky v. The Toronto-Dominion Bank and TD Securities Inc.

Blair Levinsky worked for the TD Bank (TD) in its investment banking group for 11 years. He was promoted to VP in 2002 and commenced participation in TD's Long Term Compensation Plan (LTCP), under which he was granted a specified number of restricted share units (RSUs). The RSUs matured and became payable in cash 3 years after their date of grant. Section 6.5 of the LTCP provided that "A Participant's entitlement to a particular award will be forfeited without notice by the Bank if the Participant resigns from service prior to the maturity date of such award". When Levinsky resigned in 2010 to start his own hedge fund, he had a number of unmatured RSUs that had been granted to him under the LTCP in 2007, 2008 and 2009, and which had a value of approximately $1,600,000. Levinsky forfeited the unmatured RSUs upon his resignation, and he sued TD for payment arguing that section 6.5 of the LTCP was unenforceable as an unreasonable restraint of trade.

Under the terms of the LTCP, TD granted awards of RSUs to participants at the end of a year.  The awards were payable in cash based on the TD share price at the time of maturity. The LTCP provided that the participant had to remain a TD employee until the date of maturity and meet other vesting requirements to receive the cash payment equal to the redemption value of the awards.  The "Participation Agreements" signed by Levinsky for 2005 and 2006 contained a "check box" requiring him to initial and acknowledge that he was aware of the forfeiture clause and that he has read and understood the LTCP provisions in their entirety.  Levinsky checked the box and signed the Participation Agreements.  (The Participation Agreements for 2007-2009, which were completed online, contained similar acknowledgments.)

The central issue was whether the forfeiture-on-resignation provision constituted an unreasonable restraint of trade, which in turn required Levinsky to demonstrate that the provision was in restraint of trade.  The Court held that the forfeiture clause was not a restraint of trade as it was neutral regarding what Levinsky did after termination of employment with TD.  Relying on the Ontario Court of Appeal decision in Inglis v. The Great West Life Assurance Co., the Court viewed such clauses as attaching a contingency to the entitlement to future income, but not a forfeiture of a vested right.

The Court articulated the following principles to be applied in an examination as to whether a requirement to remain in service to receive deferred compensation is a restraint of trade:

  1. The court must assess whether the clause ties the forfeiture of compensation to the termination of employment or whether it ties it to the employee's post-employment conduct. Where the forfeiture results simply from the cessation of the employee's service, the clause would not operate in restraint of trade as it does not fetter the employee's ability to choose where he or she wants to work next; and
  2. Even if the forfeiture results simply from the termination of employment, the court must examine determine whether the deferred compensation has already vested in the employee prior to termination, and if so whether or not forfeiture provision constitutes a penalty .

In the view of the Court, the forfeiture in question resulted simply from the cessation of the Levinsky's service and section 6.5 of the LTCP did not restrict him from engaging in any particular post-employment commercial activity.  In short, the entitlements under the LTCP were dependent on the continuation of services and were a form of loyalty incentive, not a restraint of trade.  Further, section 6.5 did not operate to take away vested rights of benefits from an employee, and it was therefore a binding and enforceable term of the contract of employment.


This case demonstrates that courts will consider carefully drafted deferred compensation plans with forfeiture provisions to be enforceable programs with valid business objectives.  In determining whether forfeiture provisions in deferred compensation plans constitute a restraint of trade, the courts draw a distinction between a benefit subject to a contingency and a forfeiture of a vested right.  Forfeiture provisions tied to continuation of employment will generally be enforceable. Employers with deferred compensation plans containing forfeiture provisions should ensure that the payment is conditional on continuation of employment and nothing more.   It is also noteworthy in this case that the employer required participants to initial a "tick box" annually to indicate the participant has read and understood the terms of the plan, including the forfeiture clause.  Annual "sign-on" procedures, particularly where they draw attention to the forfeiture provisions, enhance the enforceability of forfeiture clauses in such plans and are recommended wherever appropriate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.