Author: barryfisher

Ontario Court of Appeal Reaffirms Entitlement to Stock Options Over Notice Period Unless the Exclusionary Language is Clear and Unambiguous :

In O’Reilly v Imax Corp ( 2019 ONCA 991) the Court was faced again with the issue of what type of language in a bonus or stock option plan effectively denies the dismissed employee compensation for these elements over the notice period .

The exact wording under review was as follows

III. THE CONTRACTUAL PROVISIONS
18      The LTIP contained provisions for the award of both RSUs and stock options:
RSUs under the LTIP
This Agreement sets forth the general terms and conditions of Restricted Share Units (“RSUs”). By accepting the RSUs, the Participant agrees to the terms and conditions set forth in this Agreement and the IMAX 2013 Long Term Incentive Plan (the “IMAX LTIP”). . . .
4. Termination of Employment Generally. In the event that the Participant’s employment with the Company terminates for any reason other than death, Disability or for Cause, the RSUs shall cease to vest and any unvested RSUs shall be cancelled immediately without consideration as of the date of such termination. Any vested RSUs shall continue to be settled on the applicable Settlement Date.
5. Death; Disability. If the Participant’s employment with the Company terminates as a result of the Participant’s death or Disability, a portion of the RSUs shall vest such that, when combined with previously vested RSUs, an aggregate of 50% of the RSUs granted pursuant to the Agreement shall have vested. Any vested RSUs shall be settled on the applicable Settlement Date and any unvested RSUs shall be cancelled immediately without consideration as of the date of termination.
6. Termination for Cause. If the Participant’s employment with the Company terminates for Cause, any outstanding RSUs, whether or not vested, shall be cancelled immediately without consideration as of the date of termination, and the Participant shall have no further right or interest therein.
Stock Option Grants under the LTIP
This Agreement sets forth the general terms and conditions of Options. By accepting the Options, the Participant agrees to the terms and conditions set forth in this Agreement and the IMAX Corporation Long-Term Incentive Plan (the “IMAX LTIP”). . . .
(5) Termination of Employment Generally. In the event that the Participant’s employment with the Company terminates for any reason other than death, Disability or for Cause, the Options shall cease to vest, any unvested Options shall immediately be cancelled and revert back to the Company for no consideration and the Participant shall have no further right or interest therein. Any vested Options shall continue to be exercisable for a period of thirty (30) days following the date of such termination; . . . To the extent that any vested Options are not exercised within such period following termination of employment, such Options shall be cancelled and revert back to the Company for no consideration and the Participant shall have no further right or interest therein.
19      A separate Stock Option Plan provided for the award of stock options in addition to those provided under the LTIP. The relevant provision stated as follows:
Stock Option Grants under the Stock Option Plan
7. Termination of Employment, Consulting Agreement or Term of Office
(a) In the event that a Participant’s employment, consulting arrangement or term of office with the Company or one of its Subsidiariesterminates for any reason, unless the Board or the Committeedetermines otherwise, any Options which have not become Vested Options shall terminate and be cancelled without any consideration being paid therefor. [Emphasis in original.]
The Court of Appeal upheld the trial judges’ finding that these clauses did not oust the Plaintiff’s common law entitlement to compensation for these elements of compensation during the reasonable notice period. This is what they had to say :
56      In the application of the second step, the motion judge, referring to Veer, found that the reference to “terminates for any reason” in the plans could not be presumed to refer to termination without cause. Further, he found that the phrase “cancelled immediately without consideration” was not “a clear, express provision that remove[d] the common law right of an employee, terminated without cause, to claim damages in respect of lost unvested RSUs”: at para. 64.
57      The motion judge applied the correct legal principles and arrived at the correct conclusion. As I have explained in the discussion of Kieran, above, in the absence of unambiguous contractual language, as there was in Kieran, the awards continued to vest during the reasonable notice period. The respondent was entitled to damages for the loss of his entitlement to exercise his rights.
My Comments :
This issue is, as the Court said in a footnote ( see below)
” fertile ground for litigation”.
Maybe, just maybe, this decision will provide some much needed guidance on how to properly approach the issue not only of these bonus clauses but also ESA termination clauses.
This case illustrates that it is NOT an exercise in determining which interpretation is more reasonable, as it would be in a normal commercial contract.
Rather, you start with the assumption that the dismissed employee is entitled to receive his or her total compensation over the notice period and only then do you see if the plan language is so clear and unambiguous that the employee should get less than his or her common law entitlement.
Any reasonable ambiguity means the clause is ineffective.
Yes, it does look like legal hair splitting.
But remember, the Courts realize that there is no real bargaining in these relationships and  that these agreements are more like a contract of adhesion.
Moreover, it seems that Courts are bothered by the idea that the party breaching the contract of employment, by failing to give reasonable working notice, should then seek to benefit by this breach and claim that the employee is not entitled to payment solely because they are no longer working for the company.
Case Footnote :
That this area remains fertile ground for litigation is demonstrated by the fact that in the past year there have been four decisions of this court on the same subject: Dawe v. The Equitable Life Insurance Company of Canada, 2019 ONCA 512, 435 D.L.R. (4th) 573 (bonus plans); Mikelsteins v. Morrison Hershfield Limited, 2019 ONCA 515, 56 C.C.E.L. (4th) 1, leave to appeal requested, 38806 (shareholders’ agreement and share bonus); Manastersky v. Royal Bank of Canada, 2019 ONCA 609, 146 O.R. (3d) 647, leave to appeal requested, 38788 (incentive plan); and Andros v. Colliers Macaulay Nicolls Inc., 2019 ONCA 679, 437 D.L.R. (4th) 546 (bonus).

 

OCA Finally Nixes ESA Savings Clauses:

In Rossman v Canadian Solar Solutions ( 2019 ONCA 992 ) the Ontario Court of Appeal had a situation where the ESA termination had an illegal clause ( “Benefits shall cease 4 weeks from the written notice”) which the Defendant argued was remedied by a clause that said  as follows:
” In the event that the minimum statutory requirements as at the date of termination provide for any greater right or benefit than that provided in this agreement such statutory requirements will replace the notice or payments in lieu of notice contemplated under this agreement”.
The Court held that:
a) the language was ambiguous because the Plaintiff could not know if, after 4 years of service, he would get his ESA benefits ( max 8 weeks ) or the 4 weeks under the contract.
b) from a policy point, savings clause cannot help employers who attempt to contract out of the ESA.
This is what the Court said :

[39]      I make a final observation. Employees need to know the conditions, including entitlements, of their employment with certainty. This is especially so with respect to an employee’s termination – a fragile moment of stress and uncertainty.

[40]      In this context, saving provisions in termination clauses cannot save employers who attempt to contract out of the ESA’s minimum standards. Holding otherwise creates the risk employers will slip sentences, like the four-week benefits clause, into employment contracts in the hope that employees will accept the terms. This outcome exploits vulnerable employees who hold unequal bargaining power in contract negotiations. Moreover, it flouts the purpose of the ESA – to protect employees and to ensure that employers treat them fairly upon termination: Machtinger, at pp. 1002-3.

[41]      While employers are entitled to contractually amend the ESA’s notice requirements, as long as they respect the minimum standards, they are not entitled to offend them. Employers must have an incentive to comply with the ESA’s minimum notice requirements. They cannot be permitted to draft provisions that capitalize on the fact many employees are unaware of their legal rights and will often refrain from challenging notice provisions in court: Machtinger, at p. 1004. Attempting to reconcile the provisions of the Termination Clause with the benefit of hindsight runs counter to the remedial purpose of the ESA.

My Comments:

It is refreshing to see that the Court is finally putting  policy considerations front and centre in these cases involving the enforceability of ESA clauses. The Court also quotes extensively from Wood v Fred Deeley, another leading case on how to interpret ESA termination clauses.

Too often the Courts have treated these cases as one off contract interpretation cases as if they were normal commercial contracts between parties of equal bargaining power. This has led to a series of often contradictory court decisions. Hopefully this method of legal analysis will be adopted by all courts so that some well deserved certainty will finally come to this issue of interpreting termination clauses.

There is no reason in the world that employers cannot draft  fair and enforceable termination provisions that can be easily understood by the average employee, without having to have to refer to a statute  as complicated as  the Employment Standards  Act, 2000 which has 142 sections and 14 Regulations.

No Obligation to Mitigate while Disabled:

In Fenos v Manulife ( 2019 ONSC 6861) Pomerance J. had a situation where  a settlement agreement required the employer ( not Manulife but rather Facca Inc.) to make severance payments over a period of time subject to the Plaintiff’s obligation to seek reasonable alternate employment, with a corresponding reduction in the severance payments if he failed to do so .

Shortly after the settlement, the Plaintiff became very ill and was completely disabled. He therefore stopped looking for a job.

Facca stopped the payments saying that the Plaintiff had failed to seek alternate employment.

The Court disagreed with the Defendants literal interpretation. The Judge said as follows:

27      The interpretation of a contract requires consideration of the objective intentions and expectations of the parties. In this case, those expectations crystallized on the date of termination. One can presume that the condition was placed in the contract to ensure that Fenos was diligent in mitigating his loss, with a view to reducing the amount of the second and third payments. If Fenos was capable of searching for work, and did not do so, this would be a wilful failure to mitigate and that was the mischief sought to be addressed.
28      That is not what happened. Fenos did not willfully fail to comply. He became unable to do so. I find that his disability and resulting incapacity was not within the reasonable contemplation of the parties at the time of the agreement. Fenos would not logically agree to a condition that required him to do that which was physically impossible. Similarly, the company could not, in good faith, have imposed such a condition without clearly stipulating that that was their intent. The only rational inference is that both the employee and the employer contemplated that Fenos would be required to seek reasonable alternate employment so long as he was capable of doing so. This qualification is an implied term of the agreement, reasonably expected by the parties, and not overridden by the language of the agreement.

 

The Employer then tried to analogize to those cases where the Plaintiff dies during notice period and the issue is whether that ends the employers’ obligation to pay after the date of death. This is how the Court dealt with that argument:

30      Facca relies on the case of Rickards (Estate of) v. Diebold Election Systems Inc., 2007 BCCA 246, 241 B.C.A.C. 263, in which the court held that a similar termination agreement was frustrated by the death of the employee. The court in Rickards noted “[t]hat the death of a party brings to an end a contract requiring personal performance is a venerable principle of the common law” (para. 40). I see Rickards as being distinguishable. First, death is distinguishable from disability. One might reasonably presume that a termination agreement would only continue so long as the employee recipient was alive to receive the benefits. In Rickards, the employee died. The employee’s death prevented him from seeking alternate work but it also extinguished his personal need for compensation.

31      How different this case is, where the employee is still alive, in need of compensation, and unable to seek alternate employment. The decision in Rickards must be considered against the Court of Appeal’s decision in Brito v. Canac Kitchens, 2012 ONCA 61, 287 O.A.C. 293, in which, at para. 16, Cronk J.A. observed that “[t]here can be no obligation to mitigate damages by finding alternate employment where the employee is totally incapable of working.” While Brito did not involve interpretation of a termination agreement, the reasoning is equally persuasive in this context.

34      In short, the reference to “reasonable alternate employment” must logically refer to employment reasonably available in all of the circumstances. Mr. Fenos’ circumstances make it impossible for him to work anywhere. There is no reasonable alternate employment to be sought. A failure to seek out that which does not exist cannot be seen as a breach of the terms of the contract.
My Comments :
It is important to remember that this case involved the  interpretation of a settlement agreement, not the application of the law of reasonable notice.
The common law requires the giving of working notice or in the alternative, to compensate the employee in the same way as if he or she had been given a chance to work out the notice period ( pay in lieu of notice ) .
In this case if the employer had given him 12 month working notice ( assume that 12 months was proper notice ) but he became sick after 3 months and therefore could no longer work, what obligation would the employer have ?
Assume that this employer had no benefit plans like STD or LTD.
Is the employee on working notice entitled to more than would be provided if he had not been terminated ?
This issue has come up in a number of cases but it usually deals with situations  where the employer has decided not to give working notice and provides pay in lieu. In these cases the employer usually has received STD or LTD for the same period and the question is whether or not the wrongful dismissal damages are reduced by the amount of the disability payments.
Remember that there is absolutely no obligation either in the common law or under statute for an employer to pay wages to an employee who is not working due to illness. Only the existence of a contractual STD or LTD plan changes this premise.
I would invite the reader to send me any cases that has dealt with this issue of whether an employee under working notice is entitled to be paid his her wages for a period in which they cannot work due to illness. I am of course not talking about any period covered by statutory ESA payments.
In fact I faced this exact situation in a mediation I did a few years ago. The case did not settle ( not my fault of course) and frankly I don’t know if it has gone to trial yet.

 

Evidence of Events After Dismissal Admissible in Constructive Dismissal Case;

In Halifax Herald v Clarke ( 2019 NSCA 3) the Plaintiff’s commissioned sales position had been eliminated but the Defendant offered him another commission based job. The Plaintiff believed that if he accepted the new position his income would drop by 30% so he refused the job and claimed that he had been constructively dismissed. At trial the Defendant sought to lead evidence of the actual sales in the period after the departure to show that in fact his income would not have gone down.

The trial judge ruled that this after the fact evidence was not admissible, quoting the Supreme Court of Canada in Farber v Royal Trust and in Potter v New Brunswick Legal Aid Services Commission which stand for the proposition that evidence about what occurred after constructive dismissal is not relevant unless it reasonably could have been foreseen at the time of the dismissal .

However the Court of Appeal said that this evidence could be looked at to help determine what a reasonable person would have thought at the time. The Defendants’ view of the future earnings of this position were far more optimistic than that of the Plaintiff and they simply sought to introduce evidence to show that their forecast was more inline with reality that the Plaintiff’s. This is how the Court  put it

72      Here, the respondent alleged in his statement of claim that he would suffer a 30% reduction in his income at the new BDS position. The appellant pled that this was incorrect. It expected growth in the sales of non-media product, and sales outpaced 2014.
73      The proposed evidence of the 2015 actual sales for Bounty Print and Headline promotions were by no means determinative whether the appellant’s conduct did or did not breach the substantial terms of the employment contract. But the 2015 results were relevant to assess whether Mr. Clarke’s subjective beliefs were reasonable and whether a reasonable person could reasonably have foreseen the growth. They were also relevant to demonstrate what his 2015 income would likely have been as an account executive.
74      The trial judge prevented the appellant from challenging the respondent’s pessimistic outlook on sales with what actually happened.
The Court then went on to actually reverse the trial judges’ decision because it was found that she incorrectly applied the two stage analysis in Potter for determining whether or not a constructive dismissal took place.
My Comments :
On the surface it looks like the employer was trying to do exactly what the SCC said you cannot do, which is rely on information derived after the fact to determine what a reasonable person would do before those facts came into existence.
However in this case the Plaintiff was the one who pleaded that his income would go down, so clearly the Defendant should be able to lead evidence about why they disagreed with that analysis based on the information they had at the time.
It seems somewhat absurd to ignore what actually happened in trying to determine whose forecast of the future was reasonable and whose was not. The Court of Appeal seems to skate close to the line by declaring that the actual results were not determinative of this issue but were still relevant.
Perhaps this comment by the Court of Appeal tells us what they were actually thinking:
61      Alex Liot ( the Defence witness) disagreed with Mr. Clarke’s pessimistic outlook for sales at Bounty Print and Headline Promotions. When he attempted to discuss the actual 2015 sales, the respondent again objected. Ironically, it was the respondent during the discovery process that had demanded production of these numbers, obviously in the hope they would bear out Mr. Clarke’s pessimistic outlook. Apparently, they did not.

 

4 Months Pay as Punitive Damages to 4 Plaintiff’s:

In Martin, Allain, Leblanc, Bourque v Total Credit Recovery ( 2019 NBQB 102 ) Rideout J. awarded, in addition to reasonable notice , 4 moths extra pay as punitive damages for the reasons set out in this quote :
47. I realize as well that punitive or Wallace damages require “careful consideration”, and discretion to award these damages must be “cautious exercised”. With that in mind, I find the conduct of Total Credit Recovery Limited to be egregious. They knew what they were planning, told their clients about the closure but not the long-term employees until the day of the closure, gave them two weeks’ salary and then collapsed Total Credit Recovery (Atlantic) Limited so they would not have to pay reasonable notice; so they thought. To me, this conduct is harsh, vindictive, reprehensible and malicious. I believe that no employee should be treated by their employer this way and even more so when the four plaintiffs had worked for them for many years.

Indefinite Administrative Suspension = Terminated Without Cause:

In Hookimawillile v Payukotayno James and Hudson Bay Family Services ( 2019 ONSC 3514) Trembley J. dealt with a supervisor who was put on a indefinite investigative suspension without pay as a result of the death of a child.
A few days later the Plaintiff’s lawyer sent a letter to the Employer claiming that the Plaintiff had been constructively dismissed. A few days after that the Employer purported to fire her for cause for a number of incidents going back over a year.
The Court held that as there was no contractual right to suspend administratively without pay, the Plaintiff had been dismissed without cause.
Furthermore the Court held that ” the defendants cannot be allowed to retrospectively dismiss the plaintiff with cause on grounds that were known or ought to have been known to it when it constructively dismissed her.” 
The judge then made the following comment :
58      As eloquently stated in Doucet v. Spielo Manufacturing Inc., 2011 NBCA 44, 2011 CarswellNB 228(N.B. C.A.), “the law should not encourage employers to assume the role of employment archaeologists, looking through the remnants of an employee’s work history, in an effort to unearth grounds for dismissal.”

Accusing Employer of ” Major Fraud” = Just Cause

In Hicks v Len Dubois Trucking ( CarswellNat 6591), an adjudication under the Canada Labour Code, Adjudicator Deeley had a situation where a truck driver with 2 years service had a dispute with his employer regarding a shortfall of $1,140  in a series of 34 pay checks.

When his employer did not get back to him in what he thought was a reasonable timeframe, the driver sent the following email to his boss:

Of the 34 pay periods I have my sheets for, only 6 were actually correct. Even the last pay I got was wrong and I was shorted crossings and picks/loads, again. If a driver got that many loads wrong, we’d be fired long ago. Two weeks to sort out the sloppy accounting Is more than enough time to pay me for the work I’ve already done. I think, considering its obviously been going on for years and you didn’t seem particularly concerned when we talked. If It isn’t sorted out by then, the courthouse and the Labour Board can deal with the issue, plus damages, as they’ve both already sent me the appropriate forms. In legal terms, this is fraud, and I doubt I am the only one being shorted regularly on my pay. That’s major fraud over $10,000.
This email was found to be just cause. This is what the adjudicator said:
61      Mr. Hicks was not fired because he questioned his pay. He was terminated because of the way or manner in which he questioned his pay. He assumed that he had been and would be treated unfairly. Even though in his original April 14th, 2017 meeting with Mr. Sawatzky it was pointed out to him that two of his areas of concern could not be sustained, namely the basis on which he had calculated his claim for mileage, and the fact that he had already been paid for some of his drops or deliveries to Loewen Windows, he still persisted in his belief that his other calculations were absolutely correct, and that the employer would not be able to offer any reasonable alternative explanation. Before even giving his employer an opportunity to review his revised claims, he wrote a totally inappropriate email on April 28th, 2017 that accused his employer of significant misconduct and threatened further action against them. These were serious allegations which amounted to gross insubordination. They were unreasonable and uncalled for at the time in question. They invited and called for significant disciplinary action on the part of the employer, I therefore find the actions of the Respondent to be reasonable on the facts of this case, and that the Complainant, Tim Hicks, was dismissed from his employment for just cause. This complaint is therefore dismissed.
My Comments:
The Employee’s email in essence  threatened two actions against the employer;
One, that he would bring either a civil action or a ESA complaint for unpaid wages and,
Two, that he would lay criminal charges if he was not paid the  sums he said were owing.
Hopefully the Adjudicator did not consider the threat of civil or administrative actions as insubordination. Every ESA statute contains an anti- reprisal section which allows employees to either assert their rights under the act or to state  their intention to do so.
However the veiled threat of the Employee to lay criminal charges unless he was paid what he felt was owing would not only be just cause but may also be also a criminal offence in itself, namely extortion under Section 346 of the Criminal Code, which reads  as follows:

 

Extortion

  • 346 (1) Every one commits extortion who, without reasonable justification or excuse and with intent to obtain anything, by threats, accusations, menaces or violence induces or attempts to induce any person, whether or not he is the person threatened, accused or menaced or to whom violence is shown, to do anything or cause anything to be done.

  • Saving

    (2) A threat to institute civil proceedings is not a threat for the purposes of this section.

In a subsequent Wage Recovery adjudication before the same Adjudicator ( 2019 CarswellNat 6592 ) it was found that the Employee was owed $312 for unpaid wages .

 

Another Huge Costs Award For a Motion:

In Joshi v. Allstate Insurance Company of Canada,( 2019 ONSC 5934) Justice Himmel set the costs to the plaintiff in an Anti-SLAPP motion brought on by Allstate ‘s counterclaim for defamation.
This is what the Judge had to say about her reasoning :
“I will begin by acknowledging that very significant amounts of time have been spent by the lawyers on both sides and that this was justified because the legislation is relatively new. The law remains in flux with the Court of Appeal having released recent decisions for which leave to appeal to the Supreme Court of Canada has been granted, and this is the first identified example of an Anti-SLAPP motion under s. 137.1 involving a counterclaim.”
The Plaintiff asked for $126,499. The Defendant said that there full indemnity was “only” $95,173.
The judge awarded the Plaintiff $95,173, exactly what the Defendant paid their own lawyers.
This is what she said :
I find that the appropriate amount of costs to award to Ms. Joshi in this case is $95,173.26.  This is an amount that Allstate could reasonably have expected to pay as the losing party since it is the full indemnity amount of costs charged by Allstate’s counsel.  While below the full and substantial indemnity costs claimed by plaintiff’s counsel, it is in the range of what was asked for and is a significant amount of costs that is consistent with one of the identified purposes of s. 137.1(7), which is to ensure that plaintiff’s counsel, who may be working on contingency, are compensated fairly for their work as an incentive for them to represent parties who might otherwise not have sufficient means to retain counsel.  (see Anti-SLAPP Advisory Panel October 28, 2010 Report to the AG).  

[23]           Further, the amount is significant enough to serve as a deterrent against plaintiffs resorting to the courts to shut down public debate.  (see Niagara Peninsula, at para. 12)  I find this to be a fair, reasonable and proportionate award of costs for a motion in a proceeding that is continuing and in which it is reasonable to infer that some of the fruits of the work done will be of use to the plaintiff in the pursuit of her action and were not exclusively incurred in relation to the dismissed counterclaim.

Andrew Monkhouse was the lawyer  for the Plaintiff, Seann McAleese was the lawyer for Allstate.

Court Upholds Severability Clause in Termination Provision:

In Waksdale v Swegon North America ( 2019 ONSC 5705) Morgan J. had a situation where the employment agreement had two separate termination clauses; one for just cause terminations which violated the Employment Standards Act and one for without cause terminations which did not violate the ESA.
There was also a severability clause applicable to the entire contract.
The plaintiff was terminated without cause and paid out in accordance with the contract. The Plaintiff argued that the illegality of the just cause clause made the entire termination provision, including the without just cause part, illegal and unenforceable.
The Judge said no, the clauses were distinct and only the just cause clause was void and since the defendant was not relying on that clause, its illegality was irrelevant.
I am advised by Plaintiff’s counsel that they will be appealing.

SCC Just Heard case of Matthews v. Ocean Nutrition Canada Limited. My First Impressions :

This morning the SCC heard this case which deals with exclusionary clauses in employment contracts. In essence the plaintiff would have received over one million $ had he been permitted to work through his 15 month notice period but for the language of the contract. The employer had been found to have acted in bad faith.

The SCC seemed to be thinking about the various issues.

1. If the contract language itself did not purport to allow the employer to act in bad faith , would the exclusionary clause itself even apply?

2. Can a contract even purport to allow one party to act in bad faith ?

3. If the essence of a wrongful dismissal action is the failure to allow the employee the right to work through the notice period , then should not the calculation of the damages be the same as if the employee had been permitted to so work?

4. It is not in dispute that an employer may limit the length of the notice period, but can they also exclude certain items of compensation from being considered in that time frame?

5. Is extending Bhasian to the performance of an employment contract, not just to the manner of the dismissal, too big a step at this time ?

Kudos to Howard Levitt, Andrew Monkhouse , Stacey Ball and Tim Lawson for their very interesting arguments .

More comments to follow in future blogs