By Victoria Merritt, lawyer.
Employment law enthusiasts in Canada had one more thing to be thankful for this weekend: the unanimous decision released by the Supreme Court of Canada (the “SCC”) on October 9, 2020, Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26.
The issue before the SCC related to the damages an employee is entitled to following a constructive dismissal, and included the tricky question of whether an employee is entitled to discretionary compensation, such as a bonus or other incentive payment, that becomes payable once they are unemployed.
In reaching its decision, the SCC solidified a number of key employment law principles, and left the door open for some new law.
Since the SCC decision covers a lot of ground, we will discuss various aspects of it in a series of separate posts:
- The Million Dollar Question: Employee Entitlements on Termination
- Constructive Dismissal: When Resignation isn’t Resignation
- Unambiguous Drafting: Good Luck?
- The Duty of Good Faith in Employment Law
This first post sets the stage for the ones to follow by briefly summarizing the facts and conclusions reached by the SCC and courts below.
David Matthews worked at Ocean Nutrition Canada Limited from 1997 to 2011 in the role of vice-president responsible for new and emerging technologies. He was a valued employee with highly specialized skills, and contributed significantly to the organization’s success, which grew from a four-employee company to one worth $540 million.
In 2007, Ocean hired a new COO who disliked Mr. Matthews and, as a result, began a four-year campaign to marginalize him in the company. The COO took steps to reduce Mr. Matthews’ responsibilities and status, misled him on numerous occasions, and ignored his legitimate concerns regarding his employment.
In 2011, Mr. Matthews met with the VP of Human Resources to discuss an exit package. When those discussions were unsuccessful, Mr. Matthews left Ocean for a new position.
Before his departure, Mr. Matthews was aware that Ocean might be sold in the not-too-distant future. His compensation package as an Ocean employee included a long-term incentive plan (“LTIP”), which provided for him to receive a payment upon the sale of the company. The LTIP was a key reason Mr. Matthews stayed with Ocean as long as he did after his problems with senior management began, and ended up becoming the central issue before the SCC.
Ocean was in fact sold for $540 million a mere 13 months after Mr. Matthews left. This was considered a “realization event” under the LTIP plan and triggered payments to certain qualifying employees. Had Mr. Matthews still been at Ocean at the time, he would have received over $1 million as a result of the sale.
Ocean argued that Mr. Matthews had no entitlement to the LTIP payment because he was no longer employed with the company. Mr. Matthews took the position that he had been constructively dismissed, and that he was entitled to the LTIP payment (along with compensation for wrongful dismissal), and brought a claim against Ocean accordingly.
Supreme Court of Nova Scotia
The trial judge concluded that Mr. Matthews was constructively dismissed, and was entitled to a reasonable notice period of 15 months.
On the LTIP issue, the trial judge reasoned that if Mr. Matthews had not been constructively dismissed, he would have been a full-time employee when the company was sold, and was therefore entitled to damages under the LTIP plan. Those common law damages were not clearly and unambiguously limited by the LTIP plan, and Mr. Matthews was awarded just over $1 million for the loss of his LTIP payment.
Nova Scotia Court of Appeal
On appeal, the entire court agreed that Mr. Matthews had been constructively dismissed, and that 15 months was an appropriate notice period. The court did not, however, agree on damages.
The majority found that Mr. Matthews was not entitled to damages for his LTIP payment. They interpreted the LTIP agreement to be “unambiguous” in limiting that right, and stated that Mr. Matthews’ rights under the plan had ceased once he left Ocean, as specified in the LTIP agreement.
The dissenting judge focused his analysis on the mistreatment of the employee, and concluded that the company should be held liable for damages resulting from its dishonesty, which included the LTIP payment (which he would have earned had he still been employed).
Supreme Court of Canada
The only issue appealed to the SCC related to damages (both parties accepted that there had been a constructive dismissal, and that the appropriate notice period was 15 months).
The SCC confirmed that an award for wrongful dismissal should include what the employee would have earned during the notice period if their employment had not been terminated.
In order to determine an employee’s entitlement to discretionary compensation, the court must first ask whether, but-for the termination, the employee would have received the bonus during the reasonable notice period. If they would have, the court must then determine whether there is anything in the employment contract or incentive plan that unambiguously limits that common law right.
Since Mr. Matthews would have received his LTIP payment if he was still employed at Ocean, and within the applicable notice period, it was part of the compensation he was entitled to. The SCC concluded that the LTIP agreement was not clear enough to disentitle Mr. Matthews to the payment, and restored the trial judge’s decision and award.
Stayed tuned for the next installment in this multi-part blog series.
In the meantime, if you have questions about a dismissal or your entitlements on termination, contact us!