Canada: When an Equity Dispute Belonged in Delaware
Employees often sign more than one agreement. In addition to an employment agreement, they may receive stock options, bonuses, or other incentives under separate documents.
A recent Ontario Court of Appeal decision shows why those agreements need to work together—and why it matters which agreement applies when a dispute arises.
What Happened
In Friel v. HUB International Limited, 2026 ONCA 313, an Ontario employee had an employment agreement that required certain disputes to be handled through mediation and arbitration in Ontario.
He later received stock options under a separate Option Agreement. That agreement incorporated an Equityholders Agreement, which required disputes involving the equity to be brought in the Delaware Court of Chancery.
The employee resigned shortly after his options vested and went to work for a competitor. He later tried to exercise the options.
The companies that issued the equity took the position that the equity documents allowed them to repurchase the shares following his departure.
Before a court could decide who was right about the stock options, it first had to answer a more basic question:
Should the dispute be heard in Ontario or Delaware?
What the Court Decided
The Ontario Court of Appeal held that the dispute belonged in Delaware.
The employee received the options because of his employment. But the Court focused on what the Option Agreement actually said.
The agreement stated that the options:
were not employment compensation;
were not a term or condition of employment; and
did not form part of the employment agreement.
In other words, the parties had agreed that any legal rights involving the options would come from the equity documents, not the employment agreement.
Because the dispute was about the employee’s equity rights, the Delaware forum clause applied. The Ontario mediation and arbitration clause did not.
The employee also argued that it would be unfair to enforce the Delaware clause because the parties did not have equal bargaining power.
The Court rejected that argument. It found no evidence that requiring the employee to bring the case in Delaware would prevent him from pursuing his claim or place an unfair burden on him.
The Court also recognized that there was a reasonable business purpose for using one forum for equity disputes involving shareholders in different locations.
Importantly, the Court did not decide whether the companies were right to repurchase the shares. It decided only where that dispute had to be heard.
Why This Matters
Many employers use several agreements to govern the same working relationship. An employee may have:
an employment agreement;
an equity agreement;
a bonus plan;
a commission plan; and
a separate restrictive covenant agreement.
Those documents may cover different rights and use different dispute-resolution terms.
That is not necessarily a problem. But the differences should be intentional.
An employee may receive equity because they are employed, while the legal rights tied to that equity are still governed by a separate agreement. Courts may respect that separation when the documents clearly explain it.
The risk comes when agreements overlap, conflict, or leave it unclear which terms apply.
Practical Takeaways
Review all agreements together.
Do not review employment agreements, equity plans, and incentive documents in isolation. Make sure the terms work together and do not create conflicting rules.
Be clear about what each agreement covers.
If equity rights are meant to be separate from the employment agreement, say so directly.
Check the dispute-resolution language.
Different agreements may point to different courts, countries, or arbitration processes. Employers should understand where a dispute may end up before a problem arises.
Make sure the forum has a real business connection.
A court may be more likely to enforce the clause when the chosen location serves a reasonable business purpose and does not make it practically impossible for an employee to bring a claim.
Final Thoughts
The main issue in Friel was not whether the employee should keep the value of his stock options. It was which contract controlled the dispute.
That question determined where the case had to be heard before anyone reached the underlying merits.
Disclaimer:
This article is for general informational purposes only and does not constitute legal advice. Legal outcomes depend on specific facts, procedural posture, and evolving case law. Employers should consult experienced counsel regarding their particular circumstances.
