In an interesting executive employment decision, the
Ontario Superior Court of Justice recently upheld a contractual
provision that resulted in forfeiture of restricted
share units after resignation in Levinsky v The Toronto-Dominion
The Plaintiff, a Vice President and Managing Director at TD
Bank, participated in the Bank's Long Term Compensation Plan.
The Plan granted the Plaintiff Restricted Share Units each year.
Under the Plan, shares that had not yet matured would be forfeited
upon resignation. The Plaintiff resigned in 2010, and accordingly,
lost his entitlement to shares allocated to him in 2007, 2008 and
2009. The value of the shares was over $1 million. The Plaintiff
argued that the requirement to forfeit shares on resignation was a
restrictive covenant and unreasonable and therefore unenforceable.
He also argued that it was an unreasonable restraint on trade.
The Court rejected the Plaintiff's argument regarding
unenforceability of the contractual provisions. The Court concluded
that the Plaintiff was a sophisticated business man and knew the
terms of the plan when he agreed to them. The judge reviewed the
jurisprudence involving contracts with unreasonable restraints on
trade and noted the following principles. First, employment
contracts with provisions that forfeit future entitlements can
be characterized as a contingent right rather than a
restraint on trade. Second, a clause will not constitute a
restraint on trade where it does not preclude the employee
"from going anywhere and doing anything he chose to do."
The judge concluded that in assessing a contract term that
purports to restrain trade, the court must consider whether the
forfeiture, on its face or in practice, is tied to the end of
employment, or whether it is tied to an employee's conduct
following termination. If it is tied only to the termination of
employment, the clause will not act as a restraint on trade, and
therefore will be enforceable.
In the Plaintiff's case, the contract did not reference
post-termination conduct, and was a form of loyalty inducement
rather than a restraint on trade. The Plan did not create vested
rights for the Plaintiff. Rather it denied a future benefit where
the employee did not continue working for the Bank. This is
not a restraint on trade post termination.
This case is a useful example of a sophisticated employee being
held to the terms they negotiated in the employment contract. It
also defines the limits of a restraint on trade to only
restrictions that occur post-employment. Where loss of entitlements
occurs upon termination, such terms will not be rendered
unenforceable as an illegal restraint on trade. This is
particularly so where the purpose of such provisions is
to incentivize employees to remain in employment.
It should be noted that this fact situation involved a
resignation. Whether such provisions are enforceable upon
termination without cause would be a different question. In that
scenario the language of the agreement will be very important to
determine when and how future entitlements come to an end at
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Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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