Incentive Claims for Terminated Employees: Damages Even After Notice Period Ends?

The traditional battle ground in Canadian executive termination cases involves what damages, if any, the terminated employee can claim for incentives during the notice period. In this area, judges have usually focused on the wording of relevant employment agreements and applicable plan documents, such as RSU agreements and stock option plans.

A recent Ontario decision goes beyond the usual approach, with the Court awarding damages for RSUs and stock options which would have vested after the end of the notice period.

In Khatib v GoEasy Ltd., 2026 ONSC 3513, the Court held that the employer was liable for two distinct periods of time: the dismissed executive was awarded damages both for incentives which would have vested during the eight month notice period, as well as a pro-rated value of those incentives.

Shadi Khatib was employed by GoEasy for just over three years as a senior VP. Following his dismissal, he claimed 12 months notice, together with damages for all elements of his compensation. With respect to RSUs and stock options, his claim highlighted the fact that he left a prior role where he was highly compensated, and the terms of his employment were the subject of negotiations, including with respect to the incentive components.

In his lawsuit, Khatib said that the company never said that any of the incentives were subject to expiry, or to forfeiture upon termination of employment. He also testified that he objected when he later received documents which referred to a potential expiry or forfeiture.

The company’s defence was based on the wording of relevant incentive plan agreements, which contemplated lapse or expiry upon termination. The RSU and stock option plan agreements provided that anything which was not vested “on a Participant’s Termination Date” would terminate and be forfeited. There was also wording which said that any period of notice would not extend the period of employment for the purposes of the incentives.

The Court awarded reasonable notice of eight months, then proceeded to review the relevant claims for incentive payments. This review was based on a close review of relevant documents.

The starting point for the analysis was that the term “Termination Date” had not been defined in the relevant agreements. As such, the Court held as follows: “….I am persuaded that the lack of definition for “Termination Date” in the grant documents creates an ambiguity over whether a termination date includes a period of notice. That ambiguity redounds to Mr. Khatib’s benefit”.  The result was an award for the value of all of the RSUs and stock options which would have vested during the notice period, each valued at the relevant vesting dates.

The Court then proceeded to address Khatib’s further claim for incentives which would have vested following the completion of the notice period. The employer’s key argument in response was that incentives are only provided to employees who are either employed or deemed to be employed (during the notice period) on the vesting dates.

The award of damages for incentives after the notice period ended was based in part on evidence that “at least some employees were permitted to retain the pro-rated value of unvested stock units when they left the company.” The Court appears to have disregarded the evidence that any of these cases arose because of specific contract wording which was not included in Khatib’s contract or relevant agreements.

Takeaway for Employers

This case may well be an outlier decision, based on its unique facts. It is also apparently being appealed, so the principles in the ruling may not be in place for long. That said, the ruling provides a strong warning to employers about the importance of having clear contract and incentive plan wording which expressly outlines what occurs upon termination of employment. If a terminated employee is not subject to clear forfeiture provisions, there is clear scope for claims which include incentive plan damages both during the notice period, and possibly beyond.