Recent reporting regarding an Ontario Superior Court matter, Flegg v. Sigma Lithium Corporation, has highlighted the significant financial exposure employers may face when constructive dismissal disputes intersect with equity-based compensation. Although the case arose in Ontario, the issues are highly relevant to British Columbia employers, particularly in the technology and professional services sectors where Restricted Share Units (RSUs) often form a substantial portion of an executive’s compensation. In the Sigma Lithium matter, the court found that unilaterally modifying a senior executive’s role—including requiring him to report to a new hire and stripping him of responsibilities—constituted a fundamental breach. In BC, such changes are classic hallmarks of constructive dismissal, allowing an employee to claim wrongful dismissal damages even if they resign in response.

The damages award totaled approximately $2.48 million, with the vast majority tied directly to equity compensation. Much of the award arose from the employer’s failure to deliver shares already owed under the executive’s compensation arrangements, alongside damages flowing from the constructive dismissal itself. Notably, the court also awarded $250,000 in aggravated and punitive damages, signaling intense judicial scrutiny of the employer’s conduct during the restructuring. For British Columbia employers, the case underscores the judicial focus on whether an employee would have received incentive compensation during the notice period and whether plan documents clearly remove that entitlement.

These principles were reinforced by the Supreme Court of Canada in Matthews v. Ocean Nutrition Canada Ltd., which emphasized that the right to damages for lost equity exists unless the contract contains clear and unambiguous language limiting that entitlement during the common law notice period. As articulated in Matthews, courts generally examine (1) whether the employee would have been entitled to the equity “but for” the termination, and (2) whether the contractual language is sufficiently clear to displace that entitlement. In BC, where notice periods for senior roles can be extensive, unvested equity often remains a viable claim long after active employment has ended.

The practical lesson for employers is straightforward. Ambiguous “active employment” provisions or generic vesting language are frequently interpreted in favor of the employee and may not prevent claims for compensation that would have vested during the notice period. To mitigate risk, employers must ensure that employment agreements and incentive plans are carefully drafted, internally consistent, and reviewed regularly. This includes ensuring that the specific wording used to limit payouts is not only present but legally enforceable.

Ultimately, the Sigma Lithium decision illustrates the substantial liability that may arise when equity compensation disputes intersect with constructive dismissal claims. As compensation structures in BC evolve toward sophisticated models, proactive contract management has become a necessity. By ensuring that termination provisions provide greater certainty, businesses can manage leadership transitions without triggering the type of unforeseen, multi-million-dollar liabilities seen in recent litigation.

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