Supreme Court of Canada affirms benefits during reasonable notice period included in damages for termination.
By Robert J. Lesperance and Alexendar R. Starr
Robert J. Lesperance, Partner Alexander R. Starr, Associate
Phone: 604-685-8737 Phone: 604-674-9943
Email: rjl@lmlaw.ca Email: ars@lmlaw.ca
Summary: Typically, a terminated employee is owed damages for any benefits that they would have earned during their reasonable notice period, such as commissions or pensions. In Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26, the Supreme Court found that the provisions of an incentive plan were not sufficiently clear to remove the employee’s right to damages for lost incentive plan benefits.
Facts
Ocean Nutrition Canada Ltd. hired David Matthews in 1997. He served in a variety of senior management positions until leaving Ocean on June 24, 2011. He was an important part of the business, and executives noted that Ocean owed elements of its success to Mr. Matthews. However, from 2007 until Mr. Matthews left in 2011, senior management worked to cut Mr. Matthews out of operations and made his future with the company uncertain, causing Mr. Matthews considerable anxiety.
In 2010, it appeared that Ocean would be sold, which would provide payment to certain senior executives under Ocean’s long term incentive plan. This incentive plan was designed to motivate and reward contributions by key employees towards the company’s success from participating employees. In fact, the incentive plan was a reason that Mr. Matthews stayed with Ocean until 2011, despite his worsening treatment by its executives. Approximately 13 months after Mr. Matthews’ departure, Ocean was sold for $540 million, triggering incentive plan payments. Since Mr. Matthews was not actively employed, Ocean took the position that he did not qualify for the incentive payment.
Decisions before the Supreme Court
The trial court found that Mr. Matthews had been constructively dismissed and was owed a reasonable notice period of 15 months, and thus was entitled to damages for to what he would have received under the incentive plan. The Court of Appeal of Nova Scotia split 2-1 on whether Mr. Matthews was entitled to the incentive plan. A majority of the court ruled that the language of the incentive plan deprived Mr. Matthews of his ability to recover damages, and thus he could only recover if bad faith by Ocean had deprived Mr. Matthews of the incentive payment, which was not the case.
The Supreme Court of Canada
In a unanimous judgement the Supreme Court of Canada overturned the decision from the Nova Scotia Court of Appeal and found that Mr. Matthews was entitled to the incentive plan. The Supreme Court reiterated that on wrongful termination it is not a question of whether the dismissed employee is still entitled to the benefits they would have gained through employment during the notice period. Rather it is a question of whether the dismissed employee is entitled to contractual damages to compensate for the fact they are no longer able to obtain those benefits.
The starting point is that the employee is entitled to damages for all amounts they would have earned over the notice period, and the second step is for courts to analyze any benefit plan or program to determine if provisions specifically remove the employee’s entitlement to damages for that program.
The sale of Ocean, which triggered payments under the incentive plan, occurred during Mr. Matthews reasonable notice period. As the court says, at paragraph 59 “But for Mr. Matthews’ dismissal, he would have received an LTIP [incentive plan] payment during that period.”[1] The court then turned to the second step of the analysis, emphasizing that the wording must unambiguously limit or remove the employee’s common law rights.
Considering the provisions of the incentive plan, the court determined it did not clearly limit or remove Mr. Matthews’ rights. One provision stated the plan had no value for calculating severance, but read as whole, this only disentitled compensation for membership in the plan, not for payments under the plan. The requirement for “full-time” or “active” employment was considered met, given that Mr. Matthews would have been actively employed at the time of payment if Ocean had given the required notice. Finally, a provision stated that the employee had no rights to the plan on termination “with or without cause,” but Mr. Matthews had been unlawfully terminated. In the calculation of wrongful dismissal damages the reasonable notice period must expire before the employment contract is considered terminated.
The Supreme Court awarded Mr. Matthews the $1,086,893.36 he was entitled to under the plan.
Help for Employers/Employees
Employees should be encouraged by this decision, and on termination should pursue the all amount of compensation they would earn over a reasonable notice period. Any benefits, incentives, bonuses, or commissions that than an employee would ordinarily be entitled to may be recoverable from the employer. In Mr. Matthews’ case, that amount was valued at over $1,000,000, which would have represented a significant loss if Mr. Matthews had not decided to pursue his claim.
Conversely, employers should be cautious about the language of any of their benefit programs, especially in cases where the terms of such plans are imposed by the employer. When the terms are imposed, they are construed strictly by the courts, and unless exclusions are specific, employers will not be able to rely on them to disentitle an employee. If an employer hopes to avoid paying terminated employees certain benefits on termination, the language governing those benefits must clear remove the employee’s entitlement on termination.
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[1] Matthews at para. 59