Microsoft executive terminated before he could exercise $14m share options
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Canizales v Microsoft Corporation  NSWIRComm 118
Mr. Canizales was a highly paid Microsoft executive working in the United States. He was invited to take up a position in Sydney to develop and work with the ‘ninemsn’ joint venture between Microsoft and Publishing and Broadcasting Ltd.
Despite his contract only providing for one month’s notice of termination, Mr. Canizales was repeatedly assured that he would hold the position for two years or more — long enough for some $14 million of Microsoft share options to vest. However, following a falling-out with his directors, he was dismissed two months shy of the vesting period.
Mr. Canizales applied to the NSW Industrial Relations Commission for relief under the unfair contracts provisions of the New South Wales Industrial Relations Act 1996.
What the commission decided:
The NSW Industrial Relations Commission was willing in this case to utilise its statutory power to vary an unfair contract. Peterson J extended the notice period to two months, allowing Mr. Canizales to exercise the share options.
Notable quotes from the judgment:
“That the share options are in the end of utterly fantastic value, such that an employee is capable of receiving what on any view is a ridiculously large sum for work done, appears not to influence the scope here for a remedy.”
“… [W]hile one might be tempted to think that this Court ought not be concerned with ensuring an applicant can achieve, by the Court’s orders, money benefits of a lavish kind, the jurisdiction is required to be exercised in an appropriate case; to fail to do so would be an error even the excessive quanta referred to in this case seem unable to justify.”
It is important to note that Mr. Canizales was able to rely upon a statutory unfair contracts scheme specific to New South Wales. Other states lack this jurisdiction. Even in New South Wales, a subsequent amendment to the legislation now precludes access for claimants earning in excess of $200,000.
On the other hand, there is considerable scope for executives finding themselves in a similar situation to Mr. Canizales to utilise alternative statutory, common law and equitable doctrines to achieve the same or a similar result. The company’s actions in this case arguably constituted a breach of the developing doctrine of mutual trust and confidence (as recently affirmed in Russell v Trustees of the Roman Catholic Church  NSWSC 104) providing a foundation for a claim of damages compensating Mr. Canizales’ resultant inability to participate in the share scheme.
It is also possible that Mr. Canizales could have argued his case under the unconscionability provisions of the Competition and Consumer Act 2010 to secure a similar remedy. An argument based on equitable estoppel could also have been used to fulfil his prima facie right to fulfilment of the representation that he would be employed long enough to exercise the share options.
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