Claw-back did not have an oppressive penalty

Employee required to hand over profits to ex-employer for stock purchase made before quitting
|Canadian Employment Law Today

Brian Jervis was employed with Nortel Networks Corporation from 1989 until 1998. During his employment with Nortel, he received annual stock option grants as part of his compensation package. Each grant was subject to certain terms and conditions as laid out in a standard contract between Nortel and Mr. Jervis referred to as the Instrument of Grant: Non-qualified Stock Options (the grant contract).

One of the conditions of the grant was that if Mr. Jervis went to work for a competitor of Nortel within 12 months from the date of exercise of the stock option grant, Nortel had the discretion to seek repayment of the excess of market value received on the exercise of the options. Nortel could exercise this discretion when it determined that Mr. Jervis’ actions were “inimical to the best interests of the corporation.” In the 1997 and 1998 contracts, the period of time that Mr. Jervis was subject to the “claw-back” was extended from 12 months to 24 months.

Between January 1996 and January 1998, Mr. Jervis exercised his stock option grants a total of three times making a total profit of $626,857.74 (the difference between the option price per share and the shares’ market value).