RSU Entitlements Post-Termination

For many employees, especially those who work at large organizations or in senior roles, equity incentives can form an important part of their compensation package. In particular, many employers use restricted stock units ("RSUs") as a tool to both reward performance and retain talent.

What are RSUs?

RSUs are a type of equity-based compensation. A RSU is an award of stock units (aka shares) that comes with conditions, such as the passing of time or the meeting of certain milestones. Once the conditions are met, the RSUs will then "vest" and the employee will receive the shares (or cash equivalent).

To provide an example: an employee is awarded 100 RSUs upon joining a company. However, the RSUs are subject to a 4-year vesting schedule, wherein ¼ of the RSUs (25 units) vest after the employee completes each year of employment. If the employee departs the company prior after only 3-years of service, they may forfeit or lose their remaining 25 unvested units.

RSU entitlements are typically governed by detailed plans and agreements.

What happens to RSUs on termination?

As RSUs can form a significant component of an employee's compensation package, an important question is what happens to RSUs on termination?

The short answer is it depends. Let's break that down.

Vested RSUs:

RSUs are usually governed by applicable plans. That said, generally speaking, employees who are terminated without cause are entitled to exercise vested RSUs within a certain timeframe post-termination. The exact timeline will depend on the terms of the applicable plan documentation but generally ranges from 30-90 days post-termination.

Similarly, there are usually applicable plan provisions which govern an employee's entitlements on resignation or retirement. This may or may not include a timeframe to exercise vested options once notice is served. It is best to check the policy language and consider exercising options before serving your notice.

In all cases, as employers may have different policies, it is best to review the plan documentation and speak to an employment lawyer if you have any questions.

Unvested RSUs:

What about unvested RSUs? It is not uncommon for employees to have RSUs that are unvested at the time of termination, but that would vest during their termination notice/severance period.

Many employers try and include contractual language that restricts vesting during the termination notice period. Essentially, if a RSU hasn't vested at the time of termination, it is forfeited.

However, just because the contract includes that language, it doesn't necessarily mean its enforceable. We've had two recent Ontario Superior Court decisions on the issue, with differing outcomes.

In the first decision, Wigdor v. Facebook Canada Ltd., 2025 ONSC 4861, the employee had RSUs that were governed by an agreement that contained a forfeiture provision. This provision expressly indicated that (1) no RSUs would vest during the notice period, and (2) all unvested RSUs would be forfeited upon termination.

When the employee was terminated, as expected, the RSUs were not included. The employee was offered a termination package that exceeded Employment Standards Act ("ESA") minimums, contingent on a release being signed. Rather than signing, the employee decided to pursue the compensation for the RSUs that "would have" vested during the notice period. The employee proceeded in making two arguments: (1) the restriction on the RSUs violated the ESA's requirement that benefits and wages remain the same during the statutory notice period, and (2) that the language of the forfeiture provision was ambiguous.

The Court rejected both of the employee's arguments and upheld the forfeiture provision. The Court held that the RSUs are not monetary remuneration or benefit plan contributions and thus do not fall within the ESA definition of wages. Accordingly, continued RSU vesting (or pay in lieu) is not required during the statutory notice period. The Court also found the provision's language to be clear and not ambiguous.

In contrast, in the second case, Liggett v. Veeva Software Systems, Inc. and Veeva Systems Inc., 2025 ONSC 7010, the Court took a different approach and found that the forfeiture provision in the employer's RSU plan was unenforceable.

More specifically, the Court found that the provision was ambiguous and therefore unenforceable. Reasons for ambiguity included violations of the ESA, language that was insufficient to limit entitlements (whether the employee was active or not), and the broad discretionary authority granted to the employer, without guidelines for the exercise of same.

In addition, the Court found that the agreement was overall complex and could be misleading. Therefore, the employee's right to the RSUs were not extinguished and the employee was found to be entitled to the RSUs and stock options that would have vested during the notice period.

To date, there is still uncertainty in the caselaw about whether RSU entitlements are governed by the ESA or not. Stay tuned for further updates as we wait for appellate level decisions!

Conclusion

So, as you see, at this time, entitlements to RSUs post-employment really comes down to the drafting of the relevant provisions.

While there is still space for clarification by an upper court, one thing is clear: there needs to be specific, clear language if the employer wishes to limit an employee's entitlement to RSUs on termination. In other words, employers should ensure that if there is no intention for the RSUs to form part of a severance package, this is made clear with specific, non-ambiguous language in an agreement that states so.

Employees, if your RSU agreement is unclear – you may be entitled to compensation. Employer, if you use RSU agreements, ensuring you are regularly reviewing and updating for legal compliance.

If you need assistance, we are always here to help!