Last week, we wrote about a case in which the court found that a termination clause failed to consider bonus entitlements.
Last fall, the Supreme Court of Canada issued a decision that centred on a similar issue, in which it had to decide whether a constructively dismissed employee was entitled to a $1.1 million bonus under the employer’s incentive plan.
Employee Constructively Dismissed
The employee had worked for the employer since 1997 in a senior management position. As a senior executive, the employee was part of the employer’s long term incentive plan (“LTIP”), a contractual arrangement designed to reward employees for their previous contributions and to provide an incentive to continue contributing to the company’s success. Under the LTIP, a “Realization Event”, such as the sale of the company, would trigger payments to employees who qualified under the plan.
In 2007, the employer had hired a new Chief Operating Officer, who began a campaign to marginalize the employee in the company by limiting his responsibilities and lying to him about his status and prospects with the employer. Though the employee stayed with the employer for some time thereafter, he eventually left in 2011.
About 13 months after the employee’s departure, the employer company was sold for $540 million. The sale constituted a Realization Event for the purposes of the LTIP. However, because the employee was not longer actively employed at the date of sale, the employer claimed that he did not qualify for the payment, which would have equalled approximately $1.1 million.
As a result, the employee filed an application against the employer alleging that he had been constructively dismissed and sought damages, including the LTIP bonus payment.
Lower Courts Find for Employee, But Are Divided on Bonus Entitlement
The trial judge concluded that the employer had constructively dismissed the employee, and that he was owed a reasonable notice period of 15 months. The trial judge also held that the employee would have been a full‑time employee when the Realization Event occurred had he not been constructively dismissed, and that, because the terms of the LTIP did not unambiguously limit or remove his common law right to damages, the employee was entitled to damages equivalent to what he would have received under the LTIP.
The Court of Appeal unanimously upheld the decision that the employee had been constructively dismissed and that the appropriate reasonable notice period was 15 months. However, a majority of the court found that the employee was not entitled to damages on account of the lost LTIP payment.
Supreme Court of Canada Awards Bonus to Employee
The Supreme Court of Canada explained that in determining whether the employee’s damages should include an amount to compensate him for his lost LTIP payment, the focus had to be on what damages were appropriately due for the employer’s failure to provide him with reasonable notice and not on whether the terms of the LTIP were plain and unambiguous. It stated that the issue was not whether the employee was entitled to the LTIP in itself, but rather what damages he was entitled to and, specifically, whether he was entitled to compensation for bonuses he would have earned had the employer not breached the employment contract. The court stated:
“The purpose of damages in lieu of reasonable notice is to put the employee in the position they would have been in had they continued to work through to the end of the notice period. It is uncontested that the Realization Event occurred during the notice period. But for [the employee]’s dismissal, he would have received an LTIP payment during that period. In such circumstances, there is no need to ask whether the LTIP payment was “integral” to his compensation.”
The court first found that the employee was prima facieentitled to receive damages as compensation for the lost bonus. Secondly, the court found that the LTIP did not unambiguously limit or remove the employee’s common law right. It held that had the employee been given proper notice, he would have been full‑time or actively employed throughout the reasonable notice period and that, for the purpose of calculating wrongful dismissal damages, the employment contract should not be treated as terminated until after the reasonable notice period had expired.
As a result, the court found that the employee should be awarded the amount of the LTIP as part of his common law damages for breach of the implied term to provide reasonable notice, concluding:
“If [the employee] had been properly given notice of termination, he would have remained a full-time employee on the date of the Realization Event, and thus would have received an LTIP payment. His damages reflect that lost opportunity.”
The employee was therefore entitled to the approximately $1.1 million bonus under the employer’s LTIP.
Constructive dismissal is a fundamental change to an employee’s current job that results in a diminishment of your role or position. A change in status or responsibilities can be embarrassing. It may make you feel unwanted or underappreciated. Employees in Ontario must be treated with decency, civility and dignity. If your employment contract is violated or your human rights are violated, you may have the basis for a claim and negotiations with your employer.
Seeking qualified, knowledgeable and experienced legal advice from an Ontario employment lawyer should be your first step. Since 1997, I have provided employment law legal services to people throughout southern Ontario. From Peter A. McSherry Law Office in Guelph, I have helped them pursue recourse in a range of situations and industries throughout the province. When you are my client, I will work diligently to protect your rights and ensure your working conditions are not only legal, but free of discrimination and harassment. Contact me to discuss the facts of your case, discover the options you have and assess potential damages. Call me in Guelph at 519-821-5465 or by e-mail to schedule a consultation.