- Stock options and RSUs are usually governed by a separate plan document — not your employment contract.
- Most plans forfeit unvested options or RSUs outright once employment ends — you generally keep what has already vested and lose what has not.
- Here is the core issue: if you're entitled to a period of notice — whether under your contract or, where a termination clause is void, the common-law standard — does your "employment"…
If part of your compensation includes stock options, restricted share units (RSUs), or another form of equity, losing your job can mean losing more than your paycheque. Whether you keep, lose, or get compensated for unvested equity after a termination in Ontario depends on two documents working together — your equity plan and the notice-period law that applies to your dismissal — and they don't always agree.
This is one of the more overlooked pieces of a termination package. Employees often focus on salary and benefits continuation and sign a release without ever pricing out what unvested options or RSUs were actually worth.
Why Equity Compensation Complicates a Termination
Stock options and RSUs are usually governed by a separate plan document — not your employment contract. That plan sets out:
- How and when awards vest, often over several years
- What happens to unvested awards if your employment ends
- The specific date the plan treats as your "termination date" for these purposes
Your employment contract deals with notice of termination. The equity plan deals with what you're entitled to as an equity holder. The friction between the two is where most disputes happen.
Vesting and Forfeiture Clauses
Most plans forfeit unvested options or RSUs outright once employment ends — you generally keep what has already vested and lose what has not. Vested but unexercised stock options usually come with a short window to exercise them before they expire.
The critical variable is when the plan says employment "ends." Some plans define this as your last day actively at work. Others tie it to a notice period, a statutory concept, or leave the definition genuinely unclear.
The Legal Tension: Plan Wording vs. Notice-Period Law
Here is the core issue: if you're entitled to a period of notice — whether under your contract or, where a termination clause is void, the common-law standard — does your "employment" continue, for equity-vesting purposes, throughout that notice period, or does it end on your last day of active work?
Courts have grappled with this question, and outcomes vary with the specific plan wording. In general:
- Vague or generic language (for example, referring only to "your employment" without more) tends to favour the employee — courts have been reluctant to let equity plans quietly cut off entitlements that would otherwise run through a notice period.
- Clear, specific language that unambiguously limits vesting to active employment, excludes any notice period, and was properly brought to the employee's attention is more likely to be enforced as written.
There is no fixed formula here, and this remains a genuinely litigated area — treat any confident prediction about "what you're owed" with caution until a lawyer has reviewed your specific plan and contract together.
What to Check Before You Sign Anything
- [ ] Get a full copy of the equity plan document, not just a summary
- [ ] Identify exactly how the plan defines "termination of employment" or "termination date"
- [ ] Check whether your employment contract's termination clause is likely enforceable — a void clause changes the analysis considerably
- [ ] Calculate the value of what would have vested during a reasonable notice period, even if you expect to have to negotiate for it
- [ ] Do not sign a release until you understand what you may be giving up
A release presented alongside a severance offer will almost always ask you to give up any claim to unvested equity. Once signed, that's generally final.
Frequently asked questions
Do I automatically lose unvested stock options if I'm fired without cause?
Not necessarily. Whether you lose them depends on the specific wording of the equity plan and whether that wording validly cuts off vesting before the end of any notice period you're entitled to. This is a fact-specific question, not an automatic result.
Does it matter if I was fired for cause instead of without cause?
Generally yes. A termination for cause is treated very differently under both employment law and most equity plans, and typically results in forfeiture of unvested — and sometimes even vested but unexercised — awards. Whether a dismissal genuinely meets the legal threshold for "cause" is itself often disputed.
Can I negotiate for the value of lost equity as part of a severance package?
Yes. Even where a plan technically cuts off vesting on your last active day, the value of what you would have received is a common and legitimate point of negotiation in a severance discussion, particularly where the plan wording is unclear.
Is an RSU treated differently from a stock option?
RSUs convert into shares, or a cash equivalent, once vested, while stock options must be exercised — usually for a purchase price — within a set window after vesting. Both are still subject to the same basic question of what happens to the unvested portion when employment ends.
This is a litigation question
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