Wearing Different Hats: Takeaways From Mikelsteins v Morrison Hershfield Limited

INTRODUCTION

In an effort to incentivize and retain key employees, employers often reward them with an option to acquire shares in the corporation. As a condition to exercising the option, the employees are typically required to enter into a unanimous shareholders' agreement ("USA").

The 2021 Ontario Court of Appeal ("ONCA") case of Mikelsteins v Morrison Hershfield Limited ("Mikelsteins") shed light on the interplay between an employer's obligations to employees upon termination and the rights afforded to the employee-shareholder under the USA. The ONCA held that the employee-shareholder was not entitled to his share rights (including "bonus" payments) as part of his pay in lieu of notice following his termination. In light of Mikelsteins, employers should both consider the factors that could influence a Court's ruling and ensure that the obligations of each party arising from termination are clearly set out in the USA.