Court ruling a lost chance to set the law on ‘harsh’ termination clauses

In July 2020, the Ontario Superior Court (OSC) ruled in Battiston v. Microsoft Canada Inc. that, when an employer includes a “harsh and oppressive” termination provision in an employment contract that limits what it owes an employee on their termination, the employer must make extra efforts to bring those provisions to the employee’s attention.

This decision represented a warning to employers against slipping language into contracts that they know will go largely unnoticed. In Battison, the problematic language was found in lengthy documents the employee could link to in a congratulatory email which communicated to them that they had been awarded stock options or deferred share units. According to the OSC, this kind of burial of harsh language did not adequately bring the wording to the employee’s attention to make it part of the contract.

However, in an October 2021 decision, the Ontario Court of Appeal (OCA) overturned this part of the decision, ruling that adequate notice was given about the “harsh and oppressive” termination clause when the employer sent emails linking the employee to the document in language that required that the employee click to signify acceptance of the language.

Unvested stock options the key issue

More specifically, one of the main issues before the trial judge was whether Fransic Battiston was entitled to the vesting of his previously awarded but unvested stock options. Every year, Microsoft sent employees an email that mentioned their stock options, with a link leading to the lengthy agreement governing this area. Each person had to check a box to acknowledge they read, understood and accepted the agreement, even though it is safe to assume most never looked at the provisions. In fact, the OSC judge concluded that he had not noticed the wording.

The company’s records showed that, every year, Battiston checked the box. At trial, he testified that he never read the agreement given its complexity. Nor did Microsoft ever bring the agreement’s termination provisions to his attention, especially wording to the effect that an employee’s right to the stock options ceases under termination. 

Since these termination provisions were not expressly brought to his attention, the trial judge held the language could not be enforced to effectively take away shares Battiston would otherwise receive on termination of employment. He was awarded damages in lieu of the shares that would have come to him had he been given reasonable notice of his termination.

At the time the OSC decision came out, I regarded it as a sensible ruling that fit the facts as found by the trial judge. However, the ruling has now been overturned, with the OCA ruling “the trial judge erred by finding the respondent received no notice … [as] for 16 years [Battiston] expressly agreed to the terms of the agreement.”

At first glance, the appeal decision is reasonable

In some respects, the OCA ruling sounds perfectly reasonable. Battiston did check off the agreement box year in and year out and the email along with the linked-to documents was therefore sent to him: he had “notice” of the linked-to document, to borrow the conclusion the OCA reached.

I believe however that the OCA ruling was a missed opportunity to ask a more fundamental question: is the fact of “notice” in this way (the emails, the links, the checking of a box) all that should be legally required to bind an employee to such terms? In many areas of the law, a more detailed legal test is applied to impose additional requirements on a party that seeks to enforce significant terms in a contract.

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In the consumer world, for instance, it would never be considered sufficient for a person to be bound by a more onerous or unexpected clause found on the 25th page of a lengthy document they are asked to read and accept as they are booking, for instance, a car rental. Courts have observed that contracts are the product of an agreement or a “meeting of the minds” on key terms and have questioned whether such a “meeting of the minds” can take place when something significant is not brought to a person’s attention in circumstances where a bit of extra effort to do so should be made. Hiding onerous or unexpected clauses in the “small print” does not meet that standard.

We all skim through contracts before signing

In our point-and-click world, people are effectively encouraged to skim through documents and click where they are told to. We have all done that. But it begs the question of whether the act of “click here to agree” is sufficient to draw a person’s attention to something unusual in the alleged agreement.

Consider the case of a social media platform someone joins while on their phone. They have to click to accept “terms” and, having been involved with social media before and having heard what differentiates one platform from another, they “accept” the terms by clicking knowing by and large what they are agreeing to.

What if, however, the words of the agreement, in 10 point font and at page 7, reference the need to bring any disputes a person might later have to a court or expensive arbitral panel in a foreign country? Did they “agree” to this? What if the eighth page contains a clause giving the platform unfettered access and usage rights to certain images or data: is the person’s face now to become the centrepiece of a Coca-Cola marketing campaign?

These are questions courts are only beginning to tackle seriously, but that were glossed over or ignored by the OCA in the Battiston case.

Court failed to deal with the core principle at play

I am disappointed the Court does not seem to have engaged with the core principle at play here. That is not whether notice was or was not given, but whether the terms would be considered harsh, with the result that a kind of essential and special notice needed to be given.

In Battiston’s case, stock options were represented as a retention tool: work and remain, and you will be rewarded. Yet, the harsh terms meant that a grant of options was a grant of something completely valueless the moment Microsoft, and not Battiston, decided to end the relationship where ending it requires significant prior notice. Had he understood the relative worthlessness of the options, he might have pressed for more salary, better bonuses, direct share grants, or looked to other companies for better compensation.

In short, Microsoft received the consideration of retention and service by framing the options as a reward (using congratulatory emails) when Battiston was being offered something that, on a proper understanding, did not give him much.

Few employees understand how termination notice works

It goes without saying, as well, that few employees understand how options or termination notice works generally. It is easy to see an email and conclude, as the OCA did, that a level of knowledge and understanding was present when only a clear explanation at the operative moment could truly supply such understanding.

It will be interesting to see if this decision becomes the subject of further appeal. The Supreme Court has taken on some core employment issues over the last decade. And, in Matthews v. Ocean Nutrition Canada Ltd., the Supreme Court referenced the argument that prevailed at the OSC as one that was before it but it was declining, for now, to deal with. How an employment contract is formed and what terms govern may be of interest to our highest court.

The OCA may not be the last word here.

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