{"id":20112,"date":"2020-11-02T09:00:21","date_gmt":"2020-11-02T14:00:21","guid":{"rendered":"https:\/\/www.benefitscanada.com\/news\/supreme-court-decision-aggravates-termination-clause-problems-for-employers-151740"},"modified":"2020-11-02T09:00:21","modified_gmt":"2020-11-02T14:00:21","slug":"supreme-court-decision-aggravates-termination-clause-problems-for-employers","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2020\/11\/02\/supreme-court-decision-aggravates-termination-clause-problems-for-employers\/","title":{"rendered":"Supreme Court decision aggravates termination clause problems for employers"},"content":{"rendered":"
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Julius Melnitzer<\/span> | November 2, 2020 <\/p>\n

A recent decision from the Supreme Court of Canada suggests the test for employers seeking to limit recovery for unlawful termination damages related to long-term incentive plans may be insurmountable in practice.<\/p>\n

The mid-October ruling concluded that David Matthews was entitled to a payout under his incentive plan when the company was sold 13 months after he\u2019d been constructively dismissed as vice-president of Ocean Nutrition Canada Ltd., a Nova Scotia-based nutritional supplement manufacturer.<\/p>\n

Read: Court of appeal ruling highlights language in incentive plans<\/a><\/strong><\/p>\n

This despite the fact the long-term incentive plan: required Matthews to be a \u201cfull-time employee\u201d at the time of sale; stipulated the plan would be \u201cof no force and effect\u201d when his employment ceased; stated the \u201cno force and effect\u201d clause applied regardless of whether Matthews resigned or was terminated \u201cwith or without cause;\u201d and provided the plan wasn\u2019t to be \u201ccalculated as part of (Matthews\u2019) compensation for any purpose, including in connection with the employee\u2019s resignation or in any severance calculation.\u201d<\/p>\n

Although the court did clarify the law by reconciling conflicting decisions from various provinces, employers remain in a bind as to language that will relieve their long-term incentive plan obligations after termination.<\/p>\n

\u201cEven if we\u2019re fully compliant with the decision, we\u2019re never going to be able to tell clients that they are 100 per cent clear,\u201d says Brian Thiessen, a partner in Osler Hoskin & Harcourt LLP\u2019s Calgary office. \u201cAfter all, plaintiffs\u2019 lawyers are paid to find creative ways to get around the language.\u201d<\/p>\n

Read: A look at trends in long-term incentive plans<\/a><\/strong><\/p>\n

George Vassos, a partner at Littler LLP, a global and employment labour law boutique, is of similar mind. \u201cIt\u2019s an ongoing battle for employers. Although the court provided some guidance as to why the language was not sufficient to preclude the incentive plan, they\u2019ll never tell us what language is going to be right for all purposes.\u201d<\/p>\n

The drafting challenge is particularly tough when the crystallizing event is very specific, he says. \u201cUnder the terms of the LTIP, Matthews was entitled to the benefit if the company was sold within a certain period of time for a certain amount of dollars. It\u2019s pretty difficult to focus on such a singular event when you\u2019re drafting.\u201d<\/p>\n

What the court did explain was why the long-term incentive plan language didn\u2019t oust Matthews\u2019 rights. In particular, Matthews would have been \u201cfull-time\u201d or \u201cactive\u201d throughout the reasonable notice period of 15 months during which the sale took place, had he not been terminated; his termination didn\u2019t fit within the \u201cwith or without cause\u201d provision in the plan because, in the words of the court, \u201cthe employee suffered an unlawful termination since he was constructively dismissed without notice;\u201d even if the clause had referred to an \u201cunlawful\u201d termination, termination doesn\u2019t occur until the notice period expires; and preventing Matthews from seeking the benefit of the incentive plan as part of his \u201cseverance\u201d didn\u2019t limit his damages as \u201cseverance and damages are distinct legal concepts.\u201d<\/p>\n

Read: AIMCo case shows legal pitfalls of long-term incentive plans<\/a><\/strong><\/p>\n

Perhaps most ominous for employers, however, was the court\u2019s suggestion that the duty of good faith, heretofore limited to the manner of termination, might exist for the duration of the employment contract.<\/p>\n

The court didn\u2019t decide the issue, as Matthews hadn\u2019t raised a good faith argument at the Supreme Court in support of damages for mental distress or punitive damages. But Vassos believes a ruling may not be far off because the court is scheduled to hear two cases involving good faith issues in the near future.<\/p>\n

\u201cIf the court eventually holds that good faith imbues the entire employment contract, does that mean that every decision an employer makes is reviewable on that basis?\u201d he asks. \u201cWhat if an employee who wants a six per cent salary increase claims that the employer\u2019s decision to award only three per cent was not made in good faith? Will the courts have to decide?\u201d<\/p>\n

As Vassos sees it, getting the courts involved in the \u201c day-to-day mechanics\u201d of the employment relationship makes no sense. \u201cOur courts and tribunals already have their hands full enough with employment issues.\u201d <\/p>\n

Read: Ontario Teachers\u2019 loses appeal of $1M wrongful dismissal ruling<\/a><\/strong><\/p>\n

Read the full article at BenefitsCanada.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Julius Melnitzer | November 2, 2020 A recent decision from the Supreme Court of Canada suggests the test for employers seeking to limit recovery for unlawful termination damages related to long-term incentive plans may be insurmountable...<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/20112"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=20112"}],"version-history":[{"count":0,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/20112\/revisions"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=20112"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=20112"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=20112"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}