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Equity Disputes and Employment Arbitration Clauses: Lessons for Employers from Friel v. HUB International
A senior employee spent nearly a decade earning equity in his employer's corporate group. One day after his share options vested, he resigned to join a competitor. When he moved to exercise those options, the company said that leaving for a competitor was misconduct that let it buy the shares back at cost, wiping out their value. He wanted that fight heard by an Ontario arbitrator under his employment contract. In Friel v. HUB International Limited, 2026 ONCA 313, the Court of Appeal for Ontario sent it to a court in Delaware instead.
For any employer that grants options, shares, or other equity, the decision is worth close reading, because the dispute left Ontario for one reason: how the agreements were drafted. The equity documents were built to stand apart from the employment relationship, and the courts held the parties to that design.
The employer kept the equity dispute out of Ontario arbitration because the option agreement said, in plain terms, that the options were not employment compensation and did not form part of the employment contract. One point to keep in mind: the Ontario courts decided only where the dispute belongs, not whether the buyback at cost is valid. That question now goes to the Delaware court.
Do your equity plans and employment contracts point in the same direction?
When option plans, share agreements, or bonus schemes overlap with employment contracts that carry their own governing law and arbitration clauses, the mismatch can trigger a costly fight over where a dispute is even heard, before anyone reaches the merits.
Call: 1-800-771-7882 Speak With an Employment LawyerThe short version of the facts
Declan Friel joined an Ontario insurance brokerage in the HUB group in 2012. His 2012 employment agreement was governed by Ontario law and required disputes connected to that agreement to be resolved by mediation and arbitration in Ontario. Over the following years he acquired equity in the wider corporate group, a set of Delaware based entities sitting above the Ontario brokerage. In December 2014 he signed an option agreement for Class B shares in one of those entities. That option agreement incorporated an equityholders agreement by reference, and the equityholders agreement named the Delaware Court of Chancery as the forum for disputes. Friel did not sign the equityholders agreement, but he had access to it before signing the option agreement. His options vested on December 22, 2021. He resigned the next day to join a competitor, then in March 2022 gave notice to exercise the options. The company accepted that the options had vested but said joining a competitor was misconduct under the equityholders agreement, which let it repurchase the shares at cost. Friel sued in Ontario for a declaration that the dispute fell under his employment agreement's arbitration clause and that the Delaware forum clause was unconscionable. The motion judge disagreed, and he appealed to a panel of Trotter, Zarnett and Madsen JJ.A.
What the Court of Appeal decided
The Court dismissed the appeal in full. Four points give the decision its value as authority for employers.
A court, not an arbitrator, could decide the forum
Friel argued the competence-competence principle meant an arbitrator should decide jurisdiction. The Court confirmed that principle is not absolute. Where the question turns on interpreting contracts and needs only a superficial review of the record, a court can resolve it. Here the answer flowed from reading three agreements, so the motion judge was entitled to decide.
The options dispute was not connected to the employment
The option agreement stated the options were not employment compensation, were not a term or condition of employment, and did not form part of the employment agreement, and it chose Delaware law. The employment agreement said nothing about this equity grant. Read as a whole, the dispute was not "in connection with" the employment.
An unsigned agreement still bound him
The Delaware forum clause sat in an equityholders agreement Friel never signed. But it was incorporated by reference into the option agreement he did sign, and it was available to him beforehand. That was enough to bind him to the clause.
The forum clause was not unconscionable
The company accepted there was unequal bargaining power, but that alone was not enough. The bargain was not improvident, and there was no evidence that litigating in Delaware would put a remedy out of Friel's reach, so the clause stood.
Key lessons for employers
Keep equity separate from employment
State expressly that equity is not employment compensation, not a term or condition of employment, and not part of the employment contract. That language was central to keeping this dispute out of Ontario arbitration.
Choose governing law and forum on purpose
A forum selection clause, including one naming a court outside Ontario, will usually be enforced. Decide where equity disputes should be resolved and say so clearly in the equity documents.
Unequal bargaining power is not enough
A forum clause is not unconscionable simply because the employer held more power. It will stand unless the bargain is improvident or the chosen forum effectively denies the employee a remedy.
Incorporation by reference carries weight
An employee can be bound by terms in a document they never signed, if it is incorporated into one they did sign and was available to them. Provide the referenced documents and keep a record that you did.
Broad arbitration wording is not unlimited
Language such as disputes "in connection with" the employment agreement is read against what the agreements actually cover. It will not automatically capture a separately drafted equity dispute.
Leaver provisions can have teeth
Resigning to join a competitor triggered a right to repurchase the shares at cost. If equity is meant to be conditional on how and why an employee leaves, write that clearly into the equity documents.
How to structure equity so disputes stay where you intend
The decision does not mean employers should avoid granting equity. It means the equity documents have to be built with the same care as the employment contract, and aligned with it. Before your next grant, work through the following.
A practical checklist for employers
- Draft equity and incentive plans as standalone agreements, separate from the employment contract.
- State expressly that the equity is not employment compensation and not a term or condition of employment.
- Choose the governing law and dispute forum deliberately, and set them out in a clear forum selection or arbitration clause.
- Check that the equity documents and the employment contract do not point to conflicting forums or governing law for overlapping subject matter.
- Where terms are incorporated by reference, give the referenced documents to the employee before signing and keep a record that you did.
- Include clear leaver or misconduct provisions if equity is meant to be conditional on how and why the employee departs.
- Get legal advice before granting equity to employees in Ontario or British Columbia, so the structure holds if it is ever tested.
Frequently asked questions
Does an arbitration clause in an employment contract cover disputes about stock options?
Not automatically. It depends on how the equity documents are drafted. In Friel, the option agreement said the options were not employment compensation and did not form part of the employment contract, so the employment arbitration clause did not apply to the options dispute.
Can an employer choose Delaware or another jurisdiction as the forum for equity disputes?
Generally yes. Ontario courts will usually enforce a forum selection clause, even one naming a foreign court, unless the bargain is improvident or the chosen forum would effectively leave the employee without a remedy.
Is a forum selection clause binding on an employee who never signed the agreement containing it?
It can be. Here the clause sat in an equityholders agreement incorporated by reference into a signed option agreement, and the employee had access to it beforehand. That was enough to bind him.
Can we recover equity from an employee who leaves for a competitor?
Potentially, if your equity documents contain properly drafted leaver or misconduct provisions. Here, joining a competitor triggered a right to repurchase the shares at cost. Whether that repurchase right holds up on the merits was not decided in this case.
What is the single biggest lesson for employers?
Drafting decides the forum. Equity and incentive plans should be clear, standalone agreements with deliberate governing-law, forum, and leaver terms that do not collide with the dispute-resolution clauses in your employment contracts.
How Achkar Law helps employers
Achkar Law advises employers across Ontario and British Columbia on the agreements that decide cases like this one long before they reach a courtroom. We draft and review employment agreements, equity and incentive plans, and the governing-law, forum, and leaver provisions that tie them together, so your documents work as one structure rather than against each other. When a dispute does arise over equity, forum, or a departing employee, we help you assess your position and respond.
Granting equity, or planning to? Get your agreements reviewed first.
Equity plans and employment contracts that pull in different directions can turn a straightforward disagreement into an expensive fight over jurisdiction. Our team can review how your agreements fit together and help you structure them so disputes land where you intend. We advise employers across Ontario and British Columbia.
Call us at 1-800-771-7882 or fill out the form below and we will be in touch.
The information in this article is general and is not legal advice. An employment lawyer can advise on your organization's specific situation. This article summarizes a public decision of the Court of Appeal for Ontario, 2026 ONCA 313.