For many executives, salary is only one component of their total compensation. Annual bonuses, restricted share units (RSUs), stock options and other long-term incentive plans (LTIPs) often represent a substantial portion of their overall earnings.
The Ontario Superior Court’s recent decision in Khatib v. GoEasy Ltd., 2026 ONSC 3513 is an important reminder that bonuses, equity awards and other incentive compensation may form part of an employee’s damages during the reasonable notice period following a wrongful dismissal. If you are negotiating an executive severance package, this decision demonstrates why it is essential to have your compensation package reviewed by an experienced employment lawyer before accepting any offer.
Background
Mr. Khatib was employed by GoEasy Ltd. as Senior Vice President for approximately 3.5 years. In addition to his salary, he participated in the Company’s Short-Term Incentive Plan (STIP), Long-Term Incentive Plan (LTIP), and received annual grants of RSUs and stock options.
Following the termination of his employment without cause, Mr. Khatib commenced a wrongful dismissal action seeking 12 months’ pay in lieu of reasonable notice, including compensation for the STIP, RSUs and stock options he would have received during the notice period. He also sought aggravated and punitive damages, alleging GoEasy had acted in bad faith by inducing him to leave secure employment and other things.
GoEasy argued that Mr. Khatib was entitled to no more than six months’ reasonable notice, that he had not been induced to leave secure employment, and that the STIP and LTIP plans expressly disentitled him to any post-termination bonus, RSUs or stock options. The Company also denied any bad faith conduct warranting additional damages.
Decision
The Court rejected Mr. Khatib’s argument that he had been induced to leave his former employment. The evidence established that while he had been contacted by an executive recruiter, he actively participated in the recruitment process, negotiated the terms of his compensation package, and pursued the opportunity himself. The Court emphasized that simply being approached by a recruiter does not amount to inducement.
With respect to wrongful dismissal damages, the court awarded Mr. Khatib eight months’ notice. This decision reminds us that there is no legal rule entitling an employee one month of severance per year of service. Courts determine reasonable notice by considering relevant factors beyond tenure, and even employees with relatively short service may receive substantial notice periods – particularly where they occupy senior executive positions and comparable employment is difficult to obtain.
Perhaps most importantly, the Court provided valuable guidance regarding the treatment of bonuses, RSUs and stock options during the reasonable notice period.
1. Your Bonus May Still Be Owed After Termination
One of the more significant aspects of the decision concerns bonus compensation.
GoEasy argued that Mr. Khatib was not entitled to receive his annual bonus because the STIP plan said Mr. Khatib was only “eligible” to participate in the plan and the word “eligible” was different than the word “entitled”. Furthermore, the STIP plan required employees to be actively employed on the bonus payment date. The plan read:
“STIP compensation is not earned by a Participant who is terminated or resigns from employment with the Company prior to the payout times previously described.”
The Court disagreed with the employer’s position. The employer could not establish that the STIP plan had been provided to Mr. Khatib when he accepted employment, so the Plan did not govern and, in any case, its language (surrounding bonus “eligibility” and “active employment” language) did not displace Mr. Khatib’s common law right to the bonus over his reasonable notice period. Since the bonus formed an integral part of his compensation, he was awarded damages for the bonus he would have earned during the reasonable notice period. This amounted to a significant sum (40% of his salary).
For executives, this is an important reminder that employers cannot simply point to language in a bonus plan (like references to “eligibility” and “active employment”) to displace rights over the notice period. Sometimes, those clauses are legally unenforceable depends on the wording of the plan.
2. RSUs and Stock Options Can Form Part of Your Severance
Perhaps the most significant aspect of the decision relates to equity compensation.
Many executives assume that their RSUs, stock options or other long-term incentives automatically end when employment ends. That is not always the case.
In Khatib, the employer’s equity plan provided that unvested awards would be forfeited on the employee’s “Termination Date.” The problem was that the plan never defined what “Termination Date” meant. Was it the employee’s last day actively worked, or did it include the employee’s common law reasonable notice period? Because the plan was ambiguous, the Court interpreted that ambiguity in the employee’s favour.
Applying the principles established by the Supreme Court of Canada in Matthews v. Ocean Nutrition Canada Ltd., the Court awarded Mr. Khatib damages for two categories of equity compensation:
(a) Awards vesting during the notice period. The Court held that Mr. Khatib was entitled to compensation for all RSUs and stock options that vested during the eight-month reasonable notice period.
(b) Awards vesting after the notice period. The Court also addressed awards that were scheduled to vest after the reasonable notice period had expired. The court awarded a pro-rated amount for that unvested equity, reflecting the portion of the vesting period that would have elapsed during the reasonable notice period.
The Court reasoned that because the LTIP plan did not clearly remove the employee’s common law right to damages for these future awards, Mr. Khatib should be compensated for the portion of the vesting period he lost as a result of the wrongful dismissal.
This is arguably the most significant aspect of the decision. Previous cases have generally awarded damages for equity that would have vested during the reasonable notice period. Khatib goes one step further by recognizing that an employee may also recover a pro-rated value of equity scheduled to vest after the reasonable notice period has ended.
For some executives, this equity may represent hundreds of thousands – or even millions – of dollars.
Key Takeaway
Khatib v. GoEasy Ltd. is a reminder that executive severance is rarely straightforward. In many executive cases, bonuses, STIP, LTIP, RSUs, stock options and other incentive compensation represent the largest component of a wrongful dismissal claim.
If you have been dismissed from an executive position, it is important to have your severance offer reviewed before signing a release.
Contact Turnpenney Milne LLP to ensure that your offer does not undervalue your true legal entitlements.
Written By: Ozlem Yucel