Ontario Court Distinguishes Between Plaintiff’s Rights As An Employee And As An Option Holder

Key takeaways

• The Ontario Court of Appeal emphasized a clear contractual separation between the plaintiff’s rights as an employee and his rights as an option holder.
• The plaintiff’s options were found to be unrelated to his employment, as the agreements explicitly stated they were discretionary and not part of his employment compensation.
• Employers should seek legal counsel to ensure clear separation between employment agreements and equity documents.

In the recent decision Friel v. HUB International Limited, 2026 ONCA 313, the Ontario Court of Appeal considered whether the appropriate forum for resolving a former employee’s equity dispute was mediation-arbitration, as stipulated in his employment agreement, or the courts of Delaware, as stipulated in the governing equity documents.

By deciding that the appropriate forum was the courts of Delaware, the Court gave effect to the contractual separation between the plaintiff’s rights as an employee and his rights as an option holder. Friel demonstrates that, with clear contractual language, courts may enforce the terms of equity documents under the laws of contracts separate from the potentially overlapping employment relationship.

Background

During the plaintiff’s employment with HUB International HKMB Limited (HUB Ontario), he was issued options in an affiliate of HUB Ontario’s parent company, Hockey Parent Inc. (HPI). The day after his options fully vested, he resigned to work for a competitor. HPI asserted that this constituted “misconduct” within the meaning of the governing equity plan such that any value associated with his options was forfeited. At issue on appeal was whether the motion judge erred in determining that the proper forum for the resolution of the dispute was the courts of Delaware.

There were two relevant contractual arrangements:

1. the plaintiff’s employment agreement, which stipulated that “any claim, controversy, or dispute contemplated by or arising out of or in connection with [the employment agreement]” would be resolved by mediation-arbitration
2. the option agreement and equityholders agreement (together, the equity documents) governing the options in question, which designated the courts of Delaware as the forum for the resolution of any disputes

The options are not in connection with employment

One of the plaintiff’s grounds of appeal was that the motion judge erred in concluding that the dispute was not in connection with his employment.

Agreeing with the motion judge, the Court of Appeal found that the options were not “contemplated by” or “in connection with” Friel’s employment agreement based on the language in the relevant agreements. In particular, the Court relied on the following passages in the option agreement (quoted in the lower court decision):

…the Optionee acknowledges and agrees that the Option granted hereunder […] (a) are wholly discretionary, are not a term or condition of Employment and do not form part of a contract of Employment […] and (c) do not form part of salary or remuneration for purposes of determining pension payment or any other purpose [….]

and

…the Optionee acknowledges that:

…

(e) this Option is an extraordinary item that does not constitute compensation of any kind for services of any kind to the Company or its Affiliates, and is outside the scope of the Optionee’s Employment agreement [….]

Moreover, the employment agreement did not mention the options in dispute, and section 29 of the employment agreement stated that “it contains the entire understanding and agreement between the parties” (that being the plaintiff and HUB Ontario). According to the motion judge, this further removed the disputed options from the purview of the employment agreement.

The motion judge also relied on a passage within the option agreement stating that if the optionee ceased to be an employee, the document “shall not be interpreted to form an employment contract or relationship with the Company or any of its affiliates.” The documents, the motion judge held, effectively separated the plaintiff’s options from his employment compensation.

The Court of Appeal found no error in the motion judge’s reasoning, agreeing that the equity documents unambiguously stated that the grant of options did not (i) constitute employment compensation, (ii) form a term or condition of employment or (iii) form part of the employment agreement.

Forum selection clause is not unconscionable

The Court rejected the plaintiff’s challenge that the forum selection clause in the equity documents was unconscionable, finding that there was no improvident bargain and that the clause would not put a remedy out of the plaintiff’s reach.

Takeaways for employers

The courts may, with the right set of facts and clear contractual separation, enforce equity documents from a pure contractual interpretation perspective and separate it from the employment legal analysis.

To increase the chances of a court enforcing what is contemplated in the equity plan with respect to equity that is issued to employees, employers should engage legal counsel to review the terms of both the equity documents and employment agreement template to formalize the separation. This is particularly important where the equity is held by a parent company in the United States (or elsewhere), wherein the equity plan may not have been reviewed from the perspective of mitigating employment legal risks in Canada.