In Bain v UBS Securities Canada Inc ( 2016 ONSC 5362 ) Justice D.A.Wilson had the task of determining the proper compensation for a 45 year old Managing Director, Head of Canadian M&A who had 13 years and 8 months service. She determined that the correct notice period was 18 months, based in part because he had been induced away from Employment at Bank of Nova Scotia, where he had been for 5 years.
The Plaintiff lost his job though redundancy as they closed down the Canadian M&A division.
The interesting parts about this case involve how the Judge dealt with the various items of the Plaintiff’s compensation.
Entitlement to Bonus :
For the first 9 years , his bonus was all cash. Then in 2008 the bonus was split 40% cash and 60% in shares through the Equity Ownership Plan ( the EOP) . His bonuses ranged from a low of $225,000 to a high of $1.6 million. The only exception was 2011 when he received only $78,800, which was because UBS had to pay out a $2.5 billion judgement resulting from a fraud in their London office. In 2011 many UBS bonus were negatively affested like Mr Bain’s.
The Plaintiff was terminated on February 28, 2013, before the payout of the 2012 bonus. He was paid zero bonus for 2012 and for the time he worked in 2013. All of his co-workers who held comparable positions received substantial bonuses for that period, except one other banker who was terminated at the same time as Mr. Bain.
Had he received a bonus payment for 2012, it would have been paid partly as shares over a 5 year vesting period, with the first payment not occurring until March 2015. However all previous grants of shares that were granted prior to his termination would continue to vest after his dismissal.
In looking at the Defendants’ decision to pay zero bonus for the 14 months prior to termination, the Court said the following :
90. Simply because a bonus is awarded in the sole discretion of an employer does not mean that it can be done in an arbitrary or unfair fashion or that the employer can decide that an employee should not get a bonus without following a fair, identifiable process. The employer may adjust the weight given to various factors, given the market conditions and other changeable criteria, but that does not obviate the requirement that the exercise must be done in a fair manner. The court must analyze the evidence in a particular case and decide whether the process that was followed was fair and reasonable.
The Judge then noted the following :
- UBS had a in place a comprehensive and detailed compensation plan in place with the stated goal of transparence and fairness.
- Historically bonuses made up the bulk of the Plaintiff’s income, ranging from 66% to 90% of his total compensation.
- For the period in question he received a performance review that exceeded his objectives on many counts .
- Both his revenue and value of deals were up in 2012 from the previous year.
- All of his comparators, except the other banker who was terminated, got substantial bonuses.
Why then did the Plaintiff get zero bonus ? His boss testified that it nothing to do with the fact that he was terminated. The Judge did not buy that.
103. I am at a loss to understand on what basis UBS decided that Bain was not entitled to a bonus for 2012. Auclair’s testimony that notwithstanding his own assessment of Bain, he was “okay” with the decision not to give him a bonus, struck me as disingenuous. I do not accept that it was a coincidence that the only two managers who did not receive a bonus for 2012 were the two who were terminated. The timing of the terminations and the failure to grant a bonus does not assist the defence.
108. An employer is not bound to administer the bonuses in the same fashion each year; circumstances change, particularly in a volatile industry such as investment banking. However, the process followed must be fair and consistent among similarly situated employees. The fact that an employee is terminated because his job is redundant does not relieve the employer from exercising its discretion fairly.
109. I agree with the comments of Wilton-Siegel J. in Chann, where he stated, “The fact that the decision to terminate the plaintiff’s employment had been made did not remove the need to approach the process of decision-making in the same manner as in past years. The plaintiff was contractually entitled to have his remuneration determined on the same basis as in prior years and for other employees in the same year.”
110. Similarly, Bain was entitled to have his bonus for 2012 determined by UBS in the same manner as it did for other employees, and as it had done historically. I conclude that the fact that Bain was being terminated was the driving factor behind the decision of management not to award him a bonus. Despite Auclair’s denial of a link between the dismissal and zero bonus, the email from Murray, dated February 16, 2013, when the decisions were being made, confirms that the subjects of compensation and headcount were “inextricably linked”. In my view, UBS did not treat Bain fairly when dealing with the 2012 bonus and contravened their own process and stated intention to be transparent and objectively based.
The Employers’ second argument was that he was not contractually entitled to a bonus payment because a term in his Total Compensation Statement for 2011 had the following provision :
You will not earn and have no right (whether contractual or otherwise) to be paid nor be eligible to receive any discretionary incentive award if you are not in employment with UBS on the Incentive Payment Date or if either you or UBS have served notice of termination on or before the Incentive Payment Date.
The Incentive Payment Date was March 15th , by which time the Plaintiff was gone.
However the judge did not accept that by virtue of those terms, the Plaintiff has disentitled himself to a bonus payment .
112. It is submitted that Bain accepted those terms, and the terms of his employment letter no longer govern. UBS argues that an employee’s rights, including the right to a discretionary bonus, can be limited or eliminated by clear contractual language. UBS argues that Bain is not entitled to a bonus for 2012 because he was dismissed prior to the payment date.
113. The difficulty with this argument is that the evidence in this case does not support it. The evidence on what transpired after 2008 was sparse, leading me at times to wonder what the employees were told about the changes that would be in effect after the takeover and what difference, if any, that made to the terms under which they were employed with UBS.
114. There was no evidence that Bain accepted a fundamental change to his entitlement to a bonus. In cross-examination, the document indicating that if he was not employed with UBS at the time of the payment of a bonus, he would not be entitled to the bonus, was put to Bain. It was suggested to him that by accepting his bonus, he also accepted the terms set out in that document. Bain testified that the statement was given to him, there was no discussion about the terms of his bonus for 2011, and he never agreed with its contents. There was no evidence that these new limitations were brought to the attention of Bain by UBS, discussed with him, accepted by him and formed part of his contract of employment.
116. There are a number of documents from UBS which were filed in evidence that make reference to the bonus scheme. The Defendant cannot “cherry pick” certain portions from the documents that assist the position of the defence and submit that the Plaintiff agreed with these terms simply because he continued to be employed by UBS. There are other provisions in the Compensation Plans that are in direct opposition to the argument advanced by the defence.
117. For example, in the Common Terms of the Compensation Plans for 2012, section 7.1.2 states, “Nothing in the Plan Rules, the Common Terms, or the operation of a Plan forms part of the contract of employment of an employee. The rights and obligations arising from the employment relationship between the employee and the corporation or any member of the Group are separate from and not affected by a plan.”
118. In my view, the reasoning set out in Schumacher, is applicable to the case at hand. In that case, the plan provided that employees had to be actively employed at the time the bonus was paid, in order to receive it. Schumacher was constructively dismissed and the employer took the position it did not have to pay the bonus pursuant to the terms of the agreement. The court stated:
His involuntary inability to comply with the condition of the PCP ought not to be justification for the Bank in declining the award of the bonus as part of Schumacher’s damages. If that were the case, an employer would achieve a significant advantage by wrongfully terminating an employee because the severance package would not have to include any bonus. Where the bonus was promoted as an integral part of the employee’s cash compensation, it would be inappropriate and unfair to the employee to be deprived of the bonus by reason of the unilateral action of the employer. I do not agree with the position taken by the Bank on this third issue. Schumacher remains entitled to consideration of a bonus, both for the period he worked and the notice period.
I agree with this reasoning and find it is applicable to the case of Bain.
119. Bain was terminated at the time that bonuses were determined and paid to UBS employees. He worked diligently during 2012; there was no hint of his pending dismissal. He expected payment of a significant bonus, as had been the custom for the prior 13 years he had been with UBS. He was dismissed on February 28, so if I accepted the argument of the defence, he became disentitled to a bonus through the unilateral actions of UBS, over which Bain had no control. In my view, that would be an unfair result. He ought to have been considered for a bonus, just as the comparators were. The same evaluation process ought to have been followed as with the other directors, using the same objective criteria in a transparent manner. This was not done.
Quantum of Bonus :
Unlike many other bonus plans that involve the forfeiture on cessation of employment of unvested but outstanding bonus payments, this plan provided that in terminations due to redundancy only, the unvested awards would continue to vest after the termination date.
Therefore, if UBS had properly assessed his bonus he would have been awarded a 2012 bonus, payable in the 5 years following.
She also rejected the concept that she had to figure out the cash portion and the shares portion of the bonus and award the damages separately . The Judge indicated that :
Bain is not seeking the EOP award, so whether or not those shares would have vested during the notice period is not determinative. Bain is seeking damages at common law for compensation for his salary and bonuses which he would have earned had UBS not terminated his employment and failed to give proper notice. Bain had the right to work and receive his usual remuneration throughout the notice period or be paid in lieu thereof. That did not occur, and he is entitled to damages. The comments of the court in Paquette are applicable to the case at hand: “[T]he appellant is entitled to compensation as part of his damages for wrongful dismissal for the loss of his bonus for 2014 … and the lost opportunity to earn a bonus in 2015”.
In determining the amount of the bonus the judge looked at what the relevant comparators earned for the 2012 period, and averaged that amount, which came to $533,866 for the 2012 year.
For the time that he worked in 2013 ( a total of 2.75 months as he was given some working notice) Again the judge looked at what the comparators earned in 2013, divided it by 12 and multiplied it by 2.75. This came to another $242,380.
Again, for the notice period itself the judge used the average of what the comparators made in the same time frame. This came to another $1,285,044 in bonus payments over the notice period.
His total bonus entitlement for the 32.75 months of unpaid bonuses came to $2,061,290.
Not a bad payday.
Vacation Pay :
The parties agreed that the Plaintiff was owed 20.10 days vacation pay .
How much is one days vacation worth ?
Is it based on the Plaintiff’s measly salary of $385,000 or his total compensation of $1,562,650?
The ESA refers to wages as including ” sums paid as ..bonuses that are dependant on the discretion of the employer and that are not realted to hours , production or efficiency ”
This convoluted statutory language means that if a discretionary bonus is based on either hours worked, production of efficiency, then it counts as wages and thus attracts vacation pay.
In finding for the Plaintiff , the Judge said :
153. The evidence at trial made it clear that the bonus paid to directors at UBS was based on performance, the employee’s contribution to various transactions, the revenue generated by that employee’s participation in various deals as well as a number of other factors set out by UBS. The bonus was based, in part, on how an employee produced and how diligent he or she was in their work at UBS. Thus, I do not find section 1(1) is applicable and precludes inclusion of the bonus when calculating entitlement to vacation days.
This netted the Plaintiff a cool $87,472 just in vacation pay.
The total judgement, exclusive of costs, was $2,596,268.
I am advised that UBS is appealing the decision on the issue of bonus and vacation pay.
On many separate occasions in her award , the Judge comments that the actions and /or the positions of the Defendant were ” unfair”, especially when it comes to their decision to pay zero bonus, not just for the notice period ( which is common ) but more importantly for the previous year that the Plaintiff actually worked.
I wonder what the outcome would been had they paid him some bonus, based perhaps on his average over the previous two years ? Would the Court have viewed that as a reasonable exercise of the Employers’ discretion and thus not interfered with the decision?
Furthermore, if the bonus constituted “wages ” under the ESA, which the Judge found it did, then how can an Employer ever put a limitation or condition on whether or not to pay these wages?
Would this not constitute an attempt to contract out of the ESA, which is prohibited under Section 5(1) of the ESA?
The only time that an Employer can withhold the wages owing to an employee is in accordance with Section 13 of the ESA, none of which would justify the withholding of an earned bonus .
We all know that an employment contract which required the employee to be a employee on the payday, otherwise they forfeit their wages would be illegal . Why is any different if that earned wage is simply called a bonus?