Editor’s note: This blog post was co-authored by our dear friend and colleague, Jim McDonald, who passed away in January 2021. Forever the devoted advocate and mentor, he also contributed the section entitled “Tips for employee-side employment lawyers” at the end of this post.
In the much-anticipated decision of David Matthews v. Ocean Nutrition Canada Ltd., the Supreme Court of Canada reviewed the law regarding an employee’s entitlement to additional compensation, such as bonuses, after being constructively dismissed or terminated without cause where additional compensation would have been earned by the dismissed employee during the reasonable period of notice had the employee not been dismissed.
The Court held that an employment contract must unambiguously take away an employee’s right to a particular aspect of their compensation during the notice period in order to limit their common law right to that bonus or other incentive payments during reasonable notice periods or to disentitle the employee to damages equivalent to that compensation.
The findings of the Court apply to the calculation of damages during the reasonable period of notice for both constructive dismissal and more straightforward wrongful dismissal claims.
David Matthews was an employee with very specialized skills – he was one of a handful of individuals in the world with the skills needed to run a large-scale omega-3 facility. He had an employment contract which included a long-term incentive plan (LTIP) entitling him to a bonus if the company was sold, but with clauses excluding him from that benefit under certain conditions, as follows:
2.03 CONDITIONS PRECEDENT:
ONC shall have no obligation under this Agreement to the Employee unless on the date of a Realization Event the Employee is a full-time employee of ONC. For greater certainty, this Agreement shall be of no force and effect if the employee ceases to be an employee of ONC, regardless of whether the Employee resigns or is terminated, with or without cause.
The Long Term Value Creation Bonus Plan does not have any current or future value other than on the date of a Realization Event and shall not be calculated as part of the Employee’s compensation for any purpose, including in connection with the Employee’s resignation or in any severance calculation.
After approximately 14 years with Ocean, Matthews resigned, claiming that that he was being marginalized his role in the company by the conduct of Chief Operating Officer, that he had been lied to and mistreated for years in a way that made his job intolerable, and that he had been constructively dismissed. The company was sold almost one year after Matthews’ resignation. The sale was clearly a ‘Realization Event’ under the terms of the LTIP, such that Matthews would have been entitled to a Long-term Value Creation Bonus of approximately $1.1 million under the terms of the plan.
Matthews claimed damages for wrongful dismissal and an oppression remedy, including damages for the amount he would have received under the LTIP if he was working for Ocean when the company was sold.
Ocean’s position was that (pursuant to the terms of the LTIP), Matthews was not entitled to the LTIP benefit because he was not actively employed when the company was sold. Ocean also argued that Matthews, by his conduct, had somehow disentitled himself to the LTIP if he was otherwise entitled to it as part of an oppression or bad faith remedy.
The Court’s decision
By the time the matter reached the Supreme Court, the parties agreed that Matthews had been constructively dismissed and was entitled to 15 months’ notice. The question remained as to the remedies that could be afforded to the employee, and particularly whether damages for reasonable notice included the disputed LTIP.
The SCC affirmed the two-part test that applies to the Court’s consideration of a dismissed employee’s entitlement to a benefit that comes due during the reasonable period of notice. The Court must ask:
- whether the employee, but for the termination, would have been entitled to the benefit in question, and
- whether there is something in the benefit plan itself that specifically and unambiguously removes that entitlement.
As to the first part of the test, the Court held that Matthews would clearly have been entitled to the LTIP but for the termination of his employment.
As to the second part of the test, the Court noted that the LTIP is a ‘unilateral contract’ such that any clauses excluding the employee to benefits were to be strictly construed – in this case against the employer.
With respect to the particular words in the clause that Ocean relied upon in arguing that Matthews was not entitled to the LTIP, the Court held that had Matthews been given reasonable notice, he would have been ‘full-time’ at the time of the sale and that that those words in Article 2.03 would not have limited his entitlement. It also held that the words “resigns or is terminated … without cause” in Article 2.03 were not sufficiently specific and unambiguous to cover a situation where the employee was dismissed without reasonable notice as the language was not specific enough to cover the exact circumstances that had occurred in Matthews’ case.
The court also emphasized that the employment contract remains alive until the end of the reasonable period of notice for the purposes of calculating wrongful dismissal damages.
As to the language in 2.05, the Court held that ‘any severance calculation’ is something different than a calculation of wrongful dismissal damages and so that language in Article 2.05 did not disentitle Matthews to the LTIP.
Jim McDonald’s tips for employee-side employment lawyers:
The Supreme Court’s decision is equally noteworthy because of observations or comments that the Court made but didn’t rely upon or explore further in reaching its decision.
Some of these observations include:
- In situations like this one, employees might be able to argue that an exclusionary clause like Article 2.03 or 2.05 was unenforceable because it had not been adequately brought to their attention before they signed their employment contract.
- In situations like this one, employees might be able to argue that a clause like Article 2.03 or 2.05 was unenforceable because it breached minimum employment standards (a Machtinger-type argument).
- In situations of constructive dismissal, a claim for an entitlement to damages for a breach by the employer of the duty to exercise good faith in the manner of dismissal (Keays and Wallace arguments) could be based not just on the bad faith exercised by the employer at the time of the resignation – the ‘moment of dismissal’ – but could be based on the employer’s bad faith or dishonest conduct over a period of time predating the actual date of dismissal – so long as such conduct was ‘a component of the manner of dismissal’.
- In situations of constructive dismissal, damages for breach of the contractual duty to administer the employment contract in good faith are distinct from the damages that flow from the failure to give reasonable notice.
- The contractual duty of good faith to be exercised by the employer in administering the employment contract might be seen as a counterpart to the duty of loyalty owed by an employee, something existing not just at the time of dismissal but throughout the employment relationship.
- That other remedies, separate and apart from reasonable notice damages, might lie for an employer’s conduct in wrongly taking away from the employee the ‘non-monetary benefit’ of employment by acting in bad faith at the time of dismissal.
- Finally, as a firm that represents workers, we are always encouraged to read the Court’s recognition of the centrality of people’s work to their sense of dignity and meaning. Therefore, we would be remiss if we didn’t highlight the following words from the Court at paragraph 87:
Nevertheless, a proper acknowledgment that an employer’s conduct was contrary to the expected standard of good faith can transcend the request for damages, and may be meaningful for an employee in a way that a mere finding that reasonable notice was provided cannot. One aspect of this relates to dignity in the workplace, and the non-financial value associated with fair treatment upon dismissal [citations omitted]. Indeed, this Court has been emphatic in recognizing that, in addition to whatever financial dimension work entails, a person’s employment is “an essential component of [their] sense of identity, self-worth and emotional well-being” [citation omitted]. To this end, it is understandable that employees seek some recognition that they have been mistreated, reflecting that they feel it unfair, beyond any compensatory matter, that they were forced to quit in such circumstances. (Emphasis added)
If you have been wrongfully terminated, or think you may have been constructively dismissed, and you would otherwise be entitled to collect a bonus, contact us to talk about your options.
Thanks to our former articling student, Sara Ageorlo, for her assistance with this post.