Employment contracts are intended to provide an overview of the terms governing an employment relationship between the employee and employer. As the employment relationship changes or new agreements are signed, the employment contract should be updated to reflect the relationship accurately. However, this is not always the case.

A recent decision issued by the Court of Appeal for Ontario serves as an example to employers that an employment agreement should provide a complete picture of the employment relationship. Employers must ensure that all policies related to terminations, including severance packages and sign-off deadlines, are clearly communicated to employees so that they understand the terms that they are being asked to agree to.

Employee claims he was terminated without cause

In Maynard v. Johnson Controls Canada LP, the moving party and respondent employee claimed that his employer had terminated him without cause in June 2018.

The employee began working with the employer in March 2004. In 2014, his remuneration was varied to include a mix of a base salary, benefits, a bonus, and the issuing of Restricted Stock Units (“RSU”). An RSU can be a form of a delayed bonus where a number of shares in the company are issued to an employee. Stocks become available for trading once they vest, which typically follows a waiting period. In some instances, a percentage of granted RSUs vest every year; however, in other circumstances, RSUs may vest at the same time.

Employee learns he must forfeit stocks when terminated by employer

Participation in these benefits, including RSUs, was governed by a document called the “Share and Incentive Plan” (the “Plan”). The Plan included a forfeiture clause which stated that if an employee is terminated without cause, “…then any (RSUs) still subject to the Restriction Period as of the date of such termination shall automatically be forfeited to and returned to the Company.”

In this case, the employer also had the discretion to waive the forfeiture of RSUs for employees terminated without cause.

The issue that pushed this matter to litigation was the fact that the employee only learned of the Plan’s forfeiture provision during the original trial.

Employment contract analyzed by the court

The Court of Appeal quoted three sections of the employment contract with emphasis added to each provision as set out below:

“14. JCCLP may terminate your employment anytime without cause, by providing you with only the accrued wages and vacation pay owing to you and subject only to any minimum entitlements to notice of termination (or termination pay in lieu of notice) and severance pay (if any) as may be required by applicable employment standards laws…

15. The working notice and/or pay-in-lieu of working notice and severance pay (if applicable) provisions in this Annex A include any and all entitlements, statutory or otherwise, and, without restricting the generality of the foregoing, any entitlements you may have to overtime pay, public holiday pay, vacation pay, commissions, bonuses, termination pay, severance pay or compensation in lieu of reasonable notice of termination at common law and against Johnson Controls Canada LP or its insurers for benefits of any kind, provided that you will be not be paid less than you are entitled to be paid under applicable provincial employment standards legislation.

16. In addition, if JCCLP terminates your employment without cause and you sign a release in a form acceptable to JCCLP, JCCLP will provide you with a lump-sum payment equivalent to 4 weeks of pay based on your salary for each completed year of service with JCCLP, with a minimum payment equivalent to 4 weeks of salary and a maximum payment, inclusive of the payment in Paragraph 14 above, equivalent to 104 weeks’ of salary.”

Employer requests employee’s signature on termination release

The employer provided the employee with a termination letter dated June 27, 2018. The letter stated that the employee would be paid $89,652 (gross), which was equivalent to eight weeks’ pay in lieu of notice, in addition to 14.3 weeks of statutory severance as provided by the Employment Standards Act.

The letter also told the employee that the employer would pay him $225,135.12, equivalent to an additional 56 weeks of base salary, and extended benefits for an equivalent period if he signed the release attached to the letter.

Motion Judge issues summary judgment in favour of employee

The employee told the Court that he understood the release did not include the value of his RSUs, which amounted to 37% of his compensation. As a result, he refused to sign the release and instead sought to take the employer to Court to recover the compensation he believed he was entitled to.

The motion judge issued a summary judgment ruling in favour of the employee, ruling that the employer was obligated to provide the employee with notice in line with paragraph 16 of the employment contract, including the values of the RSUs.

The employer appealed the motion judge’s decision, arguing that by signing the employment contract, the employee gave up his right to recover any damages available under the common law and further limited what he would be offered in a severance package.

Court of Appeal upholds motion judge’s decision

The Court of Appeal agreed with the motion judge after finding that the employee was not aware of the forfeiture provision and did not agree to it when the RSUs were made a part of his compensation in the 2014 Plan.

The Court held that the motion judge was within their rights to interpret what would be included in the payments under paragraph 16 of the employment contract and by extension, to determine that such payments should include RSUs.

The Court held that it was not open to the employer to request the employee’s signature on a release that was not calculated in accordance with the terms of the employment agreement. Ultimately, the employer’s appeal was dismissed.

Guelph Employment Lawyer Peter A. McSherry Provides Comprehensive Advice on Wrongful Termination Claims and Severance Package Offers

The experienced employment law team at Peter A. McSherry Employment Lawyer helps workers navigate the uncertainties that can be associated with the breakdown of an employment relationship, such as wrongful termination claims, constructive dismissal claims, and severance package analysis. We work to ensure that our client’s interests are protected throughout the negotiation and settlement process, including litigation, if necessary. To arrange a confidential consultation and learn how we can assist you, contact us online or by phone at 519-821-5465.