In Paquette v. TeraGo Networks Inc., 2016 ONCA 618, the Ontario Court of Appeal, reversed in part the decision of the Superior Court of Justice (2015 ONSC 4189). In that case a 14-year employee, in an upper management position, was entitled to 17 months notice. The trial judge found, however, that the employee was not entitled to payment of bonus because he would not be active employee during notice period and therefore did not qualify.
The Court of Appeal confirmed the basic principle in awarding damages for wrongful dismissal is that the terminated employee is entitled to compensation for all losses arising from the employer’s breach of contract in failing to give proper notice (Sylvester v. British Columbia, [1977] 2. SCR 315), including bonuses accruing during the notice period where those are an “integral part of the employee’s compensation.” (See also Kieran v. Ingram Micro Inc., 2004 CarswellOnt 3117, Lin v. Ontario Teachers’ Pension Plan Board, 2016 ONCA 619). The Court noted:
“18 Where a bonus plan exists, its terms will often be important in determining the bonus component of a wrongful dismissal damages award. The plan may contain eligibility criteria and establish a formula for the calculation of the bonus. And, as here, the plan may contain limitations on or conditions for the payment of the bonus. To the extent that there are limitations, the question may arise as to whether they were brought to the attention of the affected employees, and formed part of their contract of employment. The latter issue does not arise here, however, as the appellant did not dispute that he was aware of the plan’s terms.” [Emphasis added]
- The first step is the consideration of of the employee’s common law damages, comprised of the compensation and benefits to which he would have been entitled but for the wrongful termination of his employment.
- The second step is to consider whether the bonus plan specifically limited or restricted the employee’s common law rights. “The question is not whether the contract or plan is ambiguous, but whether the wording of the plan unambiguously alters or removes the [employee’s] common law rights.” In the case at hand, a term that requires active employment when the bonus is paid, without more, is not sufficient to deprive an employee terminated without reasonable notice of a claim for the bonus the employee would have received during the notice period.
Had the appellant been terminated within the 17 months’ reasonable notice fixed by the motion judge, he would have been “actively employed” when the bonuses were paid.
In Styles v. Alberta Investment Management Corp., 2015 ABQB 621, the Alberta Court of Queen’s Bench, the issue was whether the Plaintiff is entitled to any payment under the employer’s Long Term Incentive Plan. The Plaintiff was terminated before the Plan vested.
In Bhasin v. Hrynew, 2014 SCC 71, the Supreme Court of Canada stated, among others, that the principle of good faith: “underlies and manifests itself in various more specific doctrines governing contractual performance. That organizing principle is simply that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily….” Following a review of the case law, the ACQB concluded:
“63 Based on my review of the existing jurisprudence, especially the legal principles outlined in the preceding paragraphs, it is reasonable to recognize as a manifestation of the general organizing principle of good faith, a common law duty which requires that discretionary powers granted under a contract must be exercised fairly and reasonably and not in a manner that is “capricious” or “arbitrary.” In this sense, the duty is not conceived or “thought of as an implied term, but a general doctrine of contract law that imposes as a contractual duty a minimum standard” of reasonable exercise of discretionary contractual power: see, Bhasin at para 74.
64 Accordingly, contracting parties would be unable to utilize an “entire agreement clause” to exclude or contract out of this common law duty of reasonable exercise of discretionary contractual powers, which exists under the broad umbrella of the organizing principle of good faith performance of contracts in a manner analogous to the duty of honest performance.”
In Styles, the Plan required among others that “participants must be actively employed by AIMCo…. in order to be eligible to receive any payment.” Later the requirement became somewhat less clear with the addition of the amendments to the 2011 LTIP Program Description document. In addition, the words “may be forfeited” imply an element of employer discretion to the issue of forfeiture of the LTIP grants.
The ACQB concluded:
“130 Given the evidence, facts and temporal circumstances of this case — where the Defendant (AIMCo) terminated the employment of the Plaintiff (Styles) without cause, notwithstanding the Plaintiff’s exemplary performances, and at a point in time where the Plaintiff’s entitlement to his accrued benefits under the LTIP was fast approaching — I am satisfied that the Defendant’s exercise of its discretionary contractual rights and powers under the contract of employment and the incorporated LTIP Agreement in a manner that deprived the Plaintiff of his legitimate interests in the approved LTIP grants was unfair, unreasonable, and arbitrary. The Defendant’s actions were a breach of the common law duty to exercise discretionary contractual powers reasonably.”