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Unenforceable Equity Forfeiture Clauses and Bonus on Termination: Lessons for Employers from Khatib v. GoEasy
An employer wrote forfeiture language into its stock and bonus plans, then relied on it when it dismissed a senior executive without cause. The language largely failed. In Khatib v. GoEasy Ltd, 2026 ONSC 3513, the Ontario Superior Court of Justice held the equity forfeiture provisions unenforceable and ordered the company to pay the value of the executive's vested and pro-rated unvested incentives through the notice period, along with his bonus. The reason was drafting.
The overall result was mixed. GoEasy defeated the inducement claim, held the notice period to eight months rather than twelve, avoided a tax gross-up, and paid no bad-faith or punitive damages. But on the money that mattered most, the long-term incentive plan and the bonus, its documents let it down. For employers who pay people in equity and bonuses, the decision reads like a checklist of what to fix before you have to rely on these clauses.
Here, the grant documents did not define "Termination Date", the employment agreement said nothing about what happened to incentives on termination, and there was no proof the bonus plan was delivered at hire. As a result, a dismissed executive recovered the value of his vested and pro-rated unvested units and his bonus across an eight-month notice period.
Do your bonus and equity plans actually protect you on termination?
A lot of incentive-plan forfeiture language reads as airtight but collapses under scrutiny. If a key term is undefined, the employment agreement is silent, or you cannot prove the plan was given to the employee, a court may award the value across the notice period anyway.
Call: 1-800-771-7882 Speak With an Employment LawyerThe short version of the facts
Shadi Khatib was recruited from a senior role at another company and hired by GoEasy, a financial services company, as a Senior Vice President in 2016. His package included a signing grant of restricted stock units, annual long-term incentive plan grants of restricted stock units and share options, and a short-term incentive bonus. He negotiated hard, doubling his signing grant from 2,500 to 5,000 units. GoEasy dismissed him without cause in October 2019, after about three years and five months. He sued for reasonable notice, his bonus, the value of his equity through the notice period, a tax gross-up, and bad-faith and punitive damages. Notably, GoEasy did not rely on the termination clause in the employment agreement. Instead, it argued that the separate grant documents forfeited any unvested and unexercised equity on termination, and that the bonus plan required active employment at the payout date. The court largely rejected those defences on the incentives, fixed reasonable notice at eight months, and dismissed the inducement, gross-up, and bad-faith claims. The decision was released by Mathen J.
What the court decided
The claim was granted in part. Four points give the decision its weight for employers.
The equity forfeiture clauses were unenforceable
The grant documents did not define "Termination Date", so it was unclear whether the notice period counted. The employment agreement was silent on what happened to the incentive plan on termination, and the company did not rely on its termination clause. The ambiguity was read for the employee, and the forfeiture language could not strip his equity during the notice period.
The bonus was payable because the plan was never delivered
The bonus plan said awards were not earned by an employee terminated before payout, but there was no evidence the executive ever received that plan at hire. Since the bonus was an integral part of his pay and nothing clearly removed it, he was owed it across the notice period, including a pro-rated amount.
Pro-rated vesting of unvested units was owed
Because the forfeiture language failed and the employment agreement was silent, the executive was entitled to the pro-rated value of units that had not vested by the end of the notice period. Evidence that some past departing employees had kept pro-rated stock undercut the company's argument that the plan was purely a retention device.
The employer won on inducement, notice and damages
The court found no inducement, fixed notice at eight months rather than twelve, upheld the longer 2017 vesting period on one grant, declined a tax gross-up, and refused bad-faith, punitive and moral damages. Relying on the forfeiture terms, even unsuccessfully, was not bad faith.
Key lessons for employers
Define your terms, starting with "Termination Date"
The forfeiture clauses failed because a central term was undefined and could not be tied back to the employment agreement. Define when employment ends for plan purposes, and state whether the reasonable notice period counts.
Do not leave the employment agreement silent
If the contract says nothing about what happens to bonuses and equity on termination, that silence is read for the employee. Set out the consequences in the agreement itself, not only in the plan.
Give employees the plan, and keep proof
The bonus forfeiture language failed because the company could not show the employee ever received the plan. Deliver every plan and grant document at hire and keep a signed acknowledgment.
"Eligible" is not a magic word
Arguing that the bonus was only something the employee was "eligible" for did not remove it. Where a bonus is an integral part of pay, it is clear exclusion language that limits it, not a single word.
Align the contract and the grant documents
Where the employment agreement and the grants point in different directions, or one is silent, the gap works against you. Draft them as one coherent package that says the same thing.
Watch your past practice
Letting some departing employees keep pro-rated equity undercut the argument that the plan was purely a retention tool. Inconsistent treatment can weaken your position, even where it is not discrimination.
How to make your incentive plans enforceable
The decision does not mean forfeiture clauses cannot work. It means they only work when they are clear, complete, consistent, and delivered. Before you next need to rely on one, work through the following.
A practical checklist for employers
- Define "Termination Date", or the equivalent, in every plan and grant document, and state expressly whether the reasonable notice period is included or excluded.
- Set out in the employment agreement itself what happens to the bonus and to vested and unvested equity on termination, both without cause and for cause.
- Use clear, unambiguous forfeiture language, and remember that any ambiguity or silence will be read against you.
- Deliver the full bonus and equity plan documents to the employee at hire, and keep a signed acknowledgment that they received them.
- Check that the employment agreement and the grant documents are consistent and do not contradict each other.
- Review your past practice, since inconsistent treatment of departing employees can undercut a retention-only characterization of the plan.
- Have the plans and the termination provisions reviewed by employment counsel before you rely on them.
Frequently asked questions
Can an employer forfeit an employee's unvested equity when it dismisses them without cause?
Only with clear, complete, and enforceable language. In Khatib, the forfeiture clauses failed because a key term was undefined and the employment agreement was silent, so the dismissed executive recovered the pro-rated value of his unvested units across the notice period.
Do we have to pay a bonus to an employee we dismissed before the payout date?
Possibly. If the bonus is an integral part of compensation and nothing clearly and enforceably removes it, it is payable through the notice period. Here, the company could not prove the employee ever received the bonus plan with the forfeiture language, so the bonus was owed.
Is calling a bonus something the employee is "eligible" for enough to make it discretionary?
Not on its own. The court held that using "eligible" rather than "entitled" did not strip the bonus, because in reality it was a core part of the employee's pay. Clear exclusion language limits a bonus, not a single word.
Does a signed non-inducement clause protect us from an inducement claim?
It helps, particularly with a sophisticated senior hire who could have negotiated it out. But a court will not let a non-inducement clause shield grossly unfair conduct, such as luring someone from long-term employment and then dismissing them shortly afterward.
Was anything decided in the employer's favour?
Yes. The court found no inducement, set notice at eight months rather than twelve, upheld the longer 2017 vesting period, declined a tax gross-up, and refused bad-faith, punitive and moral damages. The company's losses were about incentive-plan drafting, not the dismissal itself.
How Achkar Law helps employers
Achkar Law advises employers across Ontario and British Columbia on the documents that decide cases like this one. We draft and review employment agreements, bonus and long-term incentive plans, workplace policies, and the forfeiture and termination language that determines what you owe when someone leaves. We also advise on terminations, dismissals, and wrongful dismissal risk before decisions are made.
Relying on forfeiture clauses in your bonus or equity plans? Have them reviewed first.
A forfeiture clause that reads as airtight can still fail if a key term is undefined, the employment agreement is silent, or you cannot prove the plan was delivered. Our team can review your incentive plans and employment agreements and tell you whether they will hold. 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 Ontario Superior Court of Justice, 2026 ONSC 3513.