When Incentive Plans Point Elsewhere: Ontario, Canada Court of Appeal Sends Equity Dispute to Delaware

The Ontario Court of Appeal’s recent decision in Friel v. HUB International Limited, 2026 ONCA 313 illustrates how the structure and drafting of compensation arrangements can determine not only substantive rights, but also the forum in which disputes unfold.

While the case concerned a dispute over vested share options, the central issue in this decision was whether that dispute appropriately belonged in Ontario or in Delaware.

The dispute behind the dispute

The appellant participated in multiple contractual arrangements during his tenure with his former employer. His employment relationship was governed by an agreement that specified Ontario law and included a mediation-arbitration clause for disputes arising out of or in connection with employment. 

Separately, he entered into an option agreement granting him rights to acquire shares in a related entity. That agreement incorporated an equityholders agreement containing a forum selection clause requiring disputes to be determined in the Delaware Court of Chancery. 

The options vested in December 2021. The employee resigned the following day to join a competitor and later sought to exercise his vested rights. The company did not dispute that the options had vested but took the position that his move to a competitor triggered provisions that would effectively eliminate any economic benefit from the shares. 

Rather than proceeding in Delaware, the employee commenced an application in Ontario, arguing that the arbitration clause in his employment agreement governed the dispute.

A clean divide between employment and equity

The Court of Appeal upheld the motion judge’s conclusion that the dispute did not fall within the employment agreement.

The reasoning turned on the express language of the option agreement, which stated that the grant of options was not employment compensation, was not a term or condition of employment, and did not form part of the employment agreement. 

That language proved determinative. The Court concluded that the dispute over the options did not arise out of or in connection with employment, even though the employee’s eligibility for the options was clearly linked to his role. 

The effect was a clear contractual separation. Employment-related disputes remained subject to Ontario arbitration, while equity-related disputes were governed by a distinct framework.

Forum selection clause enforced

The Court also upheld the enforceability of the Delaware forum selection clause.

The employee argued that the clause was unconscionable, relying on inequality of bargaining power. The Court accepted that there was some imbalance but concluded that this alone was insufficient. It found no evidence that the clause created an improvident bargain or that pursuing the claim in Delaware would place a remedy out of reach. 

The Court distinguished cases in which dispute resolution mechanisms effectively prevented access to justice. In this instance, the clause dictated where the dispute would be heard, not whether it could be heard at all.

Key takeaways 

Several points emerge from the Court’s reasoning that are instructive to employers when preparing equity plans and agreements:

• Clear drafting can influence how a dispute is characterized. By expressly defining equity grants as separate from employment compensation, the agreements framed the dispute as a commercial matter rather than an employment dispute.
• Different components of a compensation framework may lead to different dispute resolution processes. Where agreements are drafted to operate independently, courts are likely to give effect to each mechanism.
• Inequality of bargaining power does not, on its own, invalidate a forum selection clause. The focus remains on whether the clause produces a result that is unfair or effectively denies access to a remedy.

This decision demonstrates how the architecture of compensation arrangements, particularly those involving cross-border entities and equity participation, can shape both the substance of disputes and the procedure by which they are resolved. 

Where agreements draw careful distinctions and use precise language, courts have shown a clear willingness to enforce those distinctions, even where the result requires parties to pursue related disputes in different forums.