March 16, 2017 by Canadian Underwriter
Two recent appeal court rulings “highlight the importance of having clearly worded provisions in employment agreements” when employers want to limit the entitlements of workers who are dismissed without case, a lawyer wrote on a recent blog post.
“Frequently, employment agreements and plan documents contain provisions directed at limiting a dismissed employee’s entitlements,” Christopher Dormer wrote in an article published Wednesday on CanLII Connects.
Dormer was commenting on two recent provincial appeal court decisions, one from Ontario and the other from Alberta.
In a decision released Jan. 4, the Alberta Court of Appeal ruled against David Styles, who was terminated without cause by Alberta Investment Management Corporation, which has a long-term incentive plan.
Styles submitted evidence that he had earned long-term incentive plan grants of $110,000 $134,000 and $127,800 in 2011, 2012 and 2013 respectively. Upon termination he was paid a lump sum equal to three months’ salary. The agreement stipulates that the long term incentive plan “pays out at the end of 4 years based on the overall annual performance of the Total Fund and Asset Class against certain benchmarks and the real rate of return of our Total Fund.”
AimCO argued that Styles was not entitled to receive his long term incentive plan grants.
“From a commercial perspective, it is difficult to reconcile the purpose of the subject contract of employment and the LTIP – which contemplated and encapsulated performance based compensation within their frameworks – with the employer’s right to terminate without cause, at any time, and thereby effectively deprive the employee of the compensation earned,” Madam Justice Debra Yungwirth of the Alberta Court of Queen’s Bench wrote in 2015. “In my view, this contractual arrangement appears to be inherently contradictory to the reasonable expectations of the contracting parties, where the employer seeks key talent and the employee aims to provide his skillful services for performance based compensation.
But Justice Yungwirth’s ruling was overturned on appeal.
The “key feature of the long term incentive plan “is that a participant who is not actively employed on the vesting date is not eligible for the bonus,” wrote the majority of the court of appeal. “This is consistent with the legitimate object of ‘retaining key talent’ obviously if the talent does not stay beyond the vesting date (four years), that legitimate objective has not been met, and there is no reason to compensate employees who have not met the very objectives of the Plan.”
In his CanLII Connects blog post, Dormer also cited a Court of Appeal for Ontario ruling, in 2016, in favour of Trevor Paquette, who had been dismissed without cause by TeraGo Networks. Mr. Justice Paul Perell of the Ontario Superior Court of Justice ruled that a reasonable notice period for Paquette would have been 17 months, but did not award him unpaid bonuses. On appeal, Paquette was awarded additional damages of $58,386.64.
“Damages for wrongful dismissal may include an amount for a bonus the employee would have received had he continued in his employment during the notice period, or damages for the lost opportunity to earn a bonus,” Madam Justice Katherine van Rensburg wrote on behalf of the of the Court of Appeal for Ontario in Paquette v. TeraGo.” This is generally the case where the bonus is an integral part of the employee’s compensation package.”
TeraGo’s bonus plans required that Paqette “be actively employed at the time of payment,” Dormer wrote in his blog post March 15, 2017. “The bonus plans did not contain specific language excluding the notice period from being considered as actively employed.”
That decision as well as the Styles ruling in Alberta “confirm that the starting point when determining whether provisions in employment agreement or plan documents limit an employee’s entitlements following termination is that an employee is entitled to receive the compensation package he or she would have received had his or her employment continued during the reasonable notice period,” Dormer wrote. “In other words, courts generally include all of the compensation and benefits that the employee would have earned during the notice period.”