Many employers rely on bonus plans (often called Short-Term Incentive Plans – “STIPs”) and equity-based plans (often called Long-Term Incentive Plans – “LTIPs”) to attract and retain employees. STIPs and LTIPs often contain provisions limiting or eliminating an employee’s entitlement to bonuses, RSUs, stock options, etc. following termination.
A recent Ontario decision, Khatib v. Goeasy Ltd., 2026 ONSC 3513, serves as an important reminder that these forfeiture terms may be unenforceable if employees are not given the opportunity to review and accept the applicable plan terms before they begin employment.
The Facts – Mr. Khatib’s Offer of Employment Only Referred to Basic STIP/LTIP Terms
The plaintiff in Khatib accepted a senior vice president role where the written offer of employment referred to participation in the company’s STIP and LTIP. However, the detailed terms of those plans (including the forfeiture terms upon termination) were not provided before he accepted the offer, or commenced employment. The offer of employment contained a termination clause that was unenforceable. In other words, the plaintiff was entitled to common law notice of termination.
Following the plaintiff’s dismissal without cause several years later, the employer tried to rely on the LTIP’s forfeiture language to, among other things, argue that its former employee was not entitled to payment for grants that had not fully vested, even after including the notional common law notice period.
The court disagreed and found that the employee was entitled to the pro-rated value of LTIP grants that did not completely vest.
While it was accepted by the court that the plaintiff received separate LTIP grant contracts for each year he received the LTIP, which contained forfeiture language, and that he accepted the grants themselves (i.e. he did not refuse them entirely), the court found that this was not enough to overcome the following key employment law principles:
- an employee is entitled to know the consequences of termination at the time of hire;
- the burden to communicate those consequences falls on the employer; and
- any ambiguity or silence in the employment contract is resolved to the employee’s benefit.
The employer’s failure to have either: (a) an enforceable termination clause in the offer of employment; or (b) forfeiture language that clearly prohibited pro-rated payouts in the incentive plans, was a crucial error.
Incorporation by Reference Has Limits
The decision fits comfortably within a broader trend in Ontario employment law.
Courts have consistently required employers to bring important contractual forfeiture provisions to an employee’s attention before the employment contract is formed.
For incentive compensation plans, this means that employers should not assume that restrictive plan language will automatically be enforceable simply because it exists somewhere within their corporate documentation.
Bottom Line
Enforceability of termination/forfeiture provisions depends not only on what the language says, but also on when/how the employee receives it.