OCA Makes New Distinction Between Types of Shareholding While Also an Employee :

In Mikelsteins v. Morrison Hershfield Limited ( 2021 ONCA 155) the OCA was required by the SCC to reconsider their earlier decision in light of Matthews v Ocean Nutrition case. In the original case the OCA refused to apply a employment based analysis to a provision in a shareholders agreement that forced the employee/shareholder to sell his shares immediately upon termination, which had the effect of denying substantial dividends which he would have been entitled to had he been given his common law right of reasonable WORKING notice.

Upon due consideration, the OCA decided they were still correct and said that because the Plaintiff had originally bought his shares with his own money it was not considered by the Court to be part of his employment compensation. As such his entitlement to dividends during the notice period was not to be implied and the language of the shareholders agreement clearly denied him post termination payments.

Here is the relevant extract :

[11]       One very important factual point underpins these two questions. They are both directed at determining the rights of the employee qua employee. That is, they are both directed at determining the damages that an employee is entitled to arising from a breach of the contract of employment.

[12]       In this case, the respondent’s claim to the dividend does not arise from the breach of his contract of employment. Rather, we were determining the respondent’s rights as a shareholder of Morrison Hershfield Group Inc. pursuant to the Shareholders’ Agreement. In that regard, it is of importance to remember that the respondent did not receive his shares in Morrison Hershfield Group Inc. as some form of compensation as an employee of the appellant. To the contrary, the respondent was given the opportunity to use his own funds to purchase shares in Morrison Hershfield Group Inc. When he elected to do so, the respondent’s rights regarding his shares were dictated by the terms of the Shareholders’ Agreement.

[13]       The decision in Ocean Nutrition does not change the proper analysis to be applied to the issues raised on the appeal in this case. The respondent’s entitlement respecting his shares falls to be determined by his rights as a shareholder of Morrison Hershfield Group Inc., not by his status as a terminated employee of the appellant. To conclude otherwise would run the risk of interfering with the established law on the rights and obligations of shareholders, much of which is codified in corporate statutes such as the Business Corporations Act, R.S.O. 1990, c. B.16 and the Canada Business Corporations Act, R.S.C. 1985, c. C-44.

[14]       Just by way of example, s. 32 of the Business Corporations Act provides that a corporation may purchase or redeem any redeemable shares issued by it, which, in one sense, is what happened in this case. As we observed in our decision, there are very good reasons why an employee-owned corporation would not wish an employee to be able to exercise all of the rights of a shareholder once their employment is terminated.

Comment : This distinction between how and why he acquired his shares seems to me to be too cute by half. Presumably had he not purchased the shares he would have demanded and received a higher salary. This will further complicate the law unnecessarily.

The OCA seemed to not want to upset the corporate governance problems that would arise from having a dismissed employee having a say in the operation of the enterprise. However I seriously doubt that the Plaintiff wanted to attend shareholders meetings. In any event his minority shareholding would have no practical effect on the operation of the enterprise. All he wanted was his MONEY.

In light of this decision, it would seem foolish for any employee to want to own shares in his non public held employer as he or she runs the risk of substantially reducing his or her rights on termination.

It seems sad that the OCA sees corporate shareholder rights as more important than employment rights.