COURT OF APPEAL FOR ONTARIO
DATE: 20000517
DOCKET: C30863
MORDEN, DOHERTY and LASKIN JJ.A.
B E T W E E N :
Brian Casey and B. Bowen
for the appellant
Respondent
- and -
R. Paritzky
for the respondent
OPEN TEXT CORPORATION
Appellant
Heard: April 27-28, 2000
On appeal from the judgment of H. Poulin J. dated October 8, 1998.
LASKIN J.A.:
[1] The appellant Open Text Corporation appeals from a decision
of Poulin J. holding that the respondent Douglas Gibson was
entitled to exercise his stock options after he stopped working
for the company, and awarding him damages of $241,856.
[2] The appeal turns on the interpretation of the Open Text
Employee Stock Option Plan. The key issue is whether the
provision of the Plan terminating each option and option
agreement on “the date the Optionee ceases to be an employee of
the Corporation” applies to Gibson. The trial judge found that
Gibson was a consultant, not an employee, and therefore concluded
that this termination provision did not apply to him. I reach a
different conclusion. In my view, this termination provision
applies to all eligible participants in the Plan, including
Gibson, whether or not the participant is strictly an employee.
Therefore, when Gibson ceased to be a consultant of Open Text,
his option agreement and his options also terminated.
BACKGROUND
[3] Open Text Corporation develops computer software. Gibson, a
chartered accountant, was hired by Open Text in the summer of
1991 to set up the company’s accounts. In November 1991 he was
appointed the chief financial officer of the company.
[4] In September 1992 the board of directors of Open Text passed
a resolution granting stock options in the company to a list of
eligible participants, including Gibson. Under the Plan an
“eligible participant” is defined to mean “any full or part time
employee of the Corporation … together with such other person or
persons as may be expressly designated by the Board of Directors
of the Corporation.” It is on the latter part of this definition
that Gibson rests his claim.
[5] In early 1993 Gibson was offered and he accepted stock
options for 30,000 shares, each exercisable at 25 cents per
share. Under his option agreement with the company these options
vested over a three year period – 10,000 in each of September
1993, September 1994 and September 1995. Under the terms of the
Plan, each option was to be exercised within one year of vesting.
In October 1994, however, the board passed an amendment extending
to five years “the period of time after vesting in which options
may be exercised by an employee.” This amendment extended the
exercise period for each tranche of Gibson’s options to September
1998, September 1999 and September 2000 respectively.
[6] Gibson resigned as the chief financial officer of the
company in June 1994. He stayed on as a consultant until
December 1994, when he entirely severed his relationship with
Open Text. When he left he had not exercised any of his stock
options, although the first two sets had vested.
[7] In January 1996 Gibson learned that Open Text, until then a
private company, intended to offer its shares to the public. He
decided to exercise his options. Open Text, however, refused to
issue Gibson any shares, taking the position that he lost his
right to exercise his options when he left the company. Gibson
then brought this action.
DISCUSSION
[8] The main issue at trial was whether Gibson was an employee
or a consultant. Gibson contended that he was not an employee
but had been expressly designated by the board to receive stock
options. He argued that the express designation was the board’s
resolution authorizing the grant of the options. Gibson,
therefore, claimed that he was not bound by the termination
provision in the Plan, which he said applied only to employees,
and could exercise his options after he left the company.
[9] The trial judge found that Gibson was a consultant to Open
Text, not an employee of the company. Although some features of
Gibson’s relationship with Open Text might suggest a different
conclusion – for example, he was treated as an employee for
health insurance coverage and he was for a time, the company’s
chief financial officer – we think that the trial judge’s
conclusion is reasonably supported by the evidence. For example,
Gibson charged Open Text a daily fee for his services, and Open
Text did not make the usual employee deductions such as income
tax, employment insurance and Canada Pension. I therefore decline
to interfere with the trial judge’s finding that Gibson was a
consultant, not an employee.
[10] That finding, however, does not determine Gibson’s rights
under the stock option plan. Accepting that he was not an
employee of the company does not answer the question whether he
should be characterized as an “employee” for the purpose of the
Plan. Indeed, the claim he asserts contains a fundamental
inconsistency. On the one hand, he claims to be entitled to take
advantage of the five year exercise period, which, by its terms,
applies to an “employee”; but, on the other hand, he denies being
bound by the termination provisions, which also apply to an
“employee” It seems to me that Gibson cannot claim to be an
employee under one provision of the Plan and not an employee
under another provision. As I discuss below, both of these
provisions are in Article 3 of the Plan, which is deemed to be
incorporated in any resolution authorising the grant of an
option.
[11] No inconsistency arises under my interpretation of the Plan.
I interpret the Plan as using the word “employee” to define the
rights of any eligible participant, whether strictly an employee
of the company or not. Under this interpretation Gibson is an
“employee” for the purposes of the Plan. The Plan is loosely
worded and the term “employee” is not defined. However, a fair
reading of the Plan as a whole shows that the drafters used the
terms “eligible participant” and “employee” interchangeably. In
other words, in defining the rights of those granted options the
Plan does not distinguish between true employees of the company
and others – such as consultants – receiving stock options.
Where the word “employee” is used, it is meant to cover any
eligible participant in the Plan, that is any one granted stock
options. Several provisions of the Plan support this
interpretation. The following (with emphasis added) are the most
salient:
• The title of the Plan is The Employee Stock Option Plan.
• Article 2.01 of the Plan provides that the board of
• directors may by resolution grant options to one or more
• eligible participants. Article 2.01 then states that
• the provisions of Article 3 are deemed to be incorporated
• in each resolution.
• Article 3.01, which was therefore incorporated in the
• resolution authorising the grant of options to Gibson,
• sets out the time period for exercising options. The
• amendment to Article 3.01, on which Gibson relies,
• extended from one year to five years “the period of time
• after vesting which options may be exercised by an
• employee.”
• Article 3.04, headed “Termination of Option,” is by
• Article 2.01 also incorporated in the resolution granting
• Gibson his options. Article 3.04 provides that each
• option and option agreement shall terminate on the earlier
• of one of four events, including (d) “the date the
• optionee ceases to be an employee of the Corporation or
• any of its subsidiaries, unless the Board of Directors by
• resolution waives or modifies the application of this
• sub-section...” The board minutes show that the board did
• modify this provision for some eligible participants, but
• it did not do so for Gibson.
• Article 2.05 addresses how and when an eligible
• participant may accept the grant of a stock option and
• Article 2.05 is headed “Acceptance by Employee.”
[12] My interpretation of the Plan is supported by the board’s
resolution granting options to Gibson. The board minutes
disclose that the resolution was passed in response to the
following recommendation of management: “And whereas management
has recommended the granting of stock options to certain
employees of the Corporation.” The resolution then provides:
- Pursuant to Section 2.01 of the Open Text
Employee Stock Option Plan, Options be and they
are hereby granted to each of the Eligible
Participants in the list annexed hereto, in each
case for the number of shares listed beside the
name of each eligible participant.
The list includes Gibson and seven other persons, at least some
of whom were employees of the company. Therefore, the board,
too, did not distinguish between employees and other eligible
participants.
[13] Because “eligible participant” and “employee” are used
interchangeably in the Plan, it matters not that Gibson was found
to be a consultant and not an employee of Open Text. He was,
nonetheless, an “employee” under the terms of the Plan and was
therefore bound by the admittedly harsh termination provisions in
Article 3.04. He did not exercise his options before he ceased
to be an “employee” on December 1994. His options and his option
agreement therefore terminated and he had no contractual right to
exercise his options in January 1996.
[14] Accordingly, I allow the appeal, set aside the judgment of
the trial judge and dismiss the action. Open Text is entitled to
its costs of the trial and the appeal.
Released: May 17, 2000 (JWM) “J.I. Laskin J.A.”
“I agree: J.W. Morden J.A.”
“I agree: D.H. Doherty J.A.”