The Supreme Court of Canada is expected to issue a decision in the coming months that will clarify whether a constructively dismissed employee was entitled to the bonus he would have received during his reasonable notice period.
The lower court decision on appeal awarded the employee almost $1.1 million as part of the employer’s incentive plan.
The employee was a chemist who has worked in the omega-3 fish oil industry for decades. He worked for the employer (or its predecessors) from January 1997 to June 2011.
In 1997, the employee started in the position of operations manager. He became a senior manager in 2001; and became vice-president of various departments from 2006 to 2009.
In early 2007, the employer created a long-term incentive plan. Under the plan, 2% of the employer’s value created on the sale or public offering of the company in excess of $100 million would be distributed among the executives who were party to the incentive plan. The plan was intended to be an incentive and a retention tool. During his employment, the employee was entitled to the plan.
Under the terms of the plan, if the employer company was sold during the period of time that the employee was employed by it, he was entitled to receive a portion of the sale proceeds based on the formula contained in the plan.
The plan also provided that if the employee was not employed by the company at the time of the sale he would not be entitled to share in the proceeds, whether he resigned or was wrongfully dismissed.
After a change in management and a significant change and reduction of his duties, the employee resigned on June 24, 2011.
On May 18, 2012, the employer announced it had been purchased by another company. On July 19, 2012, the completion of the acquisition was announced. Thetotal enterprise value of the sale was $540 million.
The employee sued the employer for wrongful dismissal seeking damages for breach of his employment contract, including the loss of the long term incentive plan.
Lower Court Decision
The hearing judge found that the employee had been constructively dismissed and was entitled to 15 months’ notice. The sale of the employer took place during that 15-month period.
The hearing judge found that despite the employee not being employed with the company at the time of the sale, he was still entitled to recover under the long term incentive plan because the notice period overlapped with the sale of the company.
As a result, the hearing judge found that had the employee been employed with the company at the time of the sale he would have been entitled to receive approximately $1.1 million under the plan and so ordered.
The employer appealed the decision.
Court of Appeal Decision
The Court of Appeal found that the hearing judge did not err in finding that the employee had been constructively dismissed, nor did he err in finding that the reasonable notice period was 15 months. However, the majority of the court found that he erred in awarding damages pursuant to the long term incentive plan.
The majority of the court found that the clause stating that the employee was not entitled to the share of the proceeds if he was not employed by the company at the time of the sale, whether through resignation or was wrongful dismissal, precluded any such payment.
As a result, the court allowed the appeal in part. It upheld the finding of constructive dismissal and 15 months reasonable notice, but set aside the $1.1 million awarded under the long term incentive plan.
However, the judge in dissent would have confirmed the amount awarded by the trial judge related to the plan. The dissenting judge stated that though the plan itself prevented recovery under that agreement, the employment contract had an implied duty of honesty and good faith and it was the employer’s dishonesty which had resulted in the employee’s constructive dismissal.
The dissenting judge would have dismissed the appeal on the issue of the long term incentive plan, finding that it was within the reasonable contemplation of the parties that if the employee was constructively dismissed he would be entitled to the payment under the plan.
The employee appealed the decision.
Supreme Court of Canada Decision
The Supreme Court of Canada granted the employee leave to appeal and heard arguments for the appeal in October 2019. The decision is expected in 2020.
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