The appeal of stock option plans (SOP) is undeniable. Indeed, by
linking employees' personal gains to the growth of the
company's share value, a SOP offers a flexible form of
compensation as well as a long-term incentive program.
That being said, is it lawful to stipulate that an employee will
lose his rights to unexercised stock options should his/her
employment be terminated for any reason? That is the question the
Quebec Court of Appeal had to answer in Premier Tech ltée c. Dollo, 2015
In this case, the Court of Appeal ruled that a provision in a
SOP stipulating that an employee will lose his/her right to
unexercised stock options upon termination of employment is not
Furthermore, the Court concluded that through the conduct of the
officers and the representations made to Mr. Dollo before the
termination of his employment, Premier Tech and its controlling
shareholder encouraged Mr. Dollo to adopt a position detrimental to
his interests. Therefore, the Court of Appeal concluded that
Premier Tech acted oppressively within the meaning of Article 241
of the Canada Business Corporations Act
A. Factual Background
Mr. Dollo was a Senior Executive of Premier Tech, hired in 1999
as Vice-President of Finance and promoted to President of the
subsidiary, Premier Horticulture in 2004.
In 2007, during a privatization process, Premier Tech eliminated
its SOP and replaced it with a new one. Section 8.01.2 of the
new SOP provided that any participant would lose the option to
purchase shares at the termination of their employment whether they
were terminated for serious reasons or not. The clause nonetheless
gave the Board of Premier Tech the discretion to "decide
Following the privatization, Mr. Dollo held 60 000 options
and 10 000 shares further to the exercise of a portion of his
In the Spring of 2010, when the branch that he presided over was
under-performing, Dollo discussed the implications of Section
8.01.2 with the principal executives of Premier Tech. They in turn
assured him that the stock options he had accumulated up to that
date were his: "what is earned is earned." Nonetheless,
when Dollo's employment was subsequently terminated in August
2010, his shares were redeemed, but the Board of Directors of
Premier Tech applied Section 8.01.2 of the SOP and refused to
allow him to exercise his options.
B. The Court of Appeal's Decision
Section 8.01.2 Is Not Abusive
This Section is not abusive in and of itself, since it gives the
Board of Directors of Premier Tech the discretion to circumvent the
clause in cases where its application could cause an unfair
The Court also ruled that the trial judge should not have
accepted expert evidence to the effect that the inclusion of a
Section similar to 8.01.2 diverges from common practice in the
industry. The Court of Appeal ruled that such evidence is
unreliable and irrelevant : a commonly used clause is not by
that fact lawful, just as a clause not commonly used becomes
automatically unlawful and abusive.
The Conduct of the Officers of Premier Tech was
The Court of Appeal emphasized that recourse to the oppression
remedy at Article 241 of the CBCA is broad and targets not
only fraud, bad faith or illegality, but also unfair situations
arising from an abuse of rights and violations of the legitimate
expectations of shareholders.
The Court of Appeal concluded that the officers of Premier Tech
had falsely reassured Dollo that his options could be exercised
should his employment be terminated. The Court of Appeal also
accepted Dollo's statement that in the absence of such
promises, he would have exercised his options before his employment
The Court therefore concluded that Dollo was entitled to expect
to be able to exercise his options even after his employment was
terminated. Considering this legitimate expectation, the Board of
Directors had the obligation to intervene and not apply 8.02.1
of the SOP. By refusing to exercise its discretion to this effect,
the Board of Directors acted in a manner that was oppressive and
unjust towards Dollo.
C. To Be Followed...
After reading this decision of the Court of Appeal, the question
remains as to whether the result would have been the same if not
for the fact that the litigious provision gave the Board of
Directors the discretion to circumvent. It will be interesting to
see whether the decision of the Court of Appeal will be brought
before the Supreme Court of Canada and whether similar provisions,
that do not give a Board of Directors any discretion, will be
declared valid by the courts in the future.
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