Sunday, 21 August 2016

Employees Not “Actively Employed” Still Entitled to Bonus Payments: ONCA

EA Sports, the makers of such videogame as NHL hockey and Madden NFL football, previously employed the motto, “If it's in the game, it's in the game”, meaning that if something happened in the real game, then it would appear in the videogame. More recently, the motto has been shorted to simply “It’s in the game.”

While it is highly unlikely we will see a member of Ontario’s judiciary on the cover on NHL 18, the court did just lay some serious body checks, figuratively speaking, on Ontario’s employers. Following two decisions from the Court of Appeal for Ontario Paquette v. TeraGo Networks Inc., 2016 ONCA 618 (CanLII) and Lin v. Ontario Teachers' Pension Plan, 2016 ONCA 619 (CanLII), both of which were released on August 9, 2016, Ontario’s employers would be prudent to heed this warning: “In determining damages for wrongful dismissal, Ontario’s court will typically include all of the compensation and benefits that the employee would have earned during the notice period.” Put another way, “If it’s in the game, it’s in the game.”

Facts

Both Lin and Paquette concerned the issue of whether an employee is entitled to the receipt of bonus payments during the reasonable notice period.

In Lin, the employee was employed by the Ontario Teachers' Pension Plan. When his employment was terminated for cause he sued. Following the trial of the matter, Justice David L. Corbett of the Superior Court of Justice found that Mr. Lin had not been properly terminated and was therefore entitled to wrongful dismissal damages, including the payment of his compensation under two incentive or bonus compensation plans: the AIP (a short-term incentive plan) and the LTIP (a long-term incentive plan). Mr. Lin’s payments under these plans typically comprised approximately 60% of his annual compensation. He received annual bonuses under the AIP from at least 2007 onwards and under the LTIP starting in 2009. Under both plans, payments were made to participants annually in April in respect of the “performance period” ending on December 31 of the previous year.

At trial, the parties agreed to the components of Lin’s remuneration, as well as most of the applicable amounts if he was found to have an entitlement. Where the parties differed was in respect of his entitlements, in some instances irrespective of whether he had been terminated for cause.

The employer denied that Mr. Lin was entitled to any payment under the two plans once his employment was terminated. It relied on specific wording contained in the 2010 amendments to both plans providing for the forfeiture of any amounts to which a participant would be entitled upon the termination of employment for any reason:

In the event that a Participant resigns his or her employment with [Teachers’] or the Participant’s employment with [Teachers’] is terminated for any reason (whether with or without Cause), the Participant shall on the Termination Date forfeit any and all rights to be paid a bonus under the Plan (or any amount in lieu thereof) or to accrue any further bonus under the Plan. For further certainty, in the event a Participant’s employment terminates after completion of a calendar year in respect of which a bonus had been earned by the Participant under the Plan but prior to payment of that bonus, no bonus (or any amount in lieu thereof) shall be paid to the Participant.

“Termination Date” was defined as:

The date on which a Participant ceases to be employed by or provide services to [Teachers’] and, for greater certainty, does not include any period following the date on which a Participant is notified that his or her employment or services are terminated (whether such termination is lawful or unlawful) during which the Participant is eligible to receive any statutory, contractual or common law notice or compensation in lieu thereof or severance payments unless the Participant is actually required by [Teachers’] to provide services during such notice period.

In Paquette, which was resolved by way of a motion for summary judgment, the Honourable Justice Paul M. Perell of the Superior Court of Justice, found that Mr. Paquette, whose employment had been terminated without cause was not entitled to the receipt of any bonus payments because he was not “actively employed by [the employer] on the date of the bonus payout,” as was required under the terms of his bonus plan.

Decision

In finding that Justice Perell had erred in principle, Justice Katherine van Rensburg wrote the following on behalf of the Court of Appeal:

[16] The basic principle in awarding damages for wrongful dismissal is that the terminated employee is entitled to compensation for all losses arising from the employer’s breach of contract in failing to give proper notice. The damages award should place the employee in the same financial position he or she would have been in had such notice been given: Sylvester v. British Columbia, [1997] 2 S.C.R. 315, at para. 1. In other words, in determining damages for wrongful dismissal, the court will typically include all of the compensation and benefits that the employee would have earned during the notice period: Davidson v. Allelix Inc. (1991), 1991 CanLII 7091 (ON CA), 7 O.R. (3d) 581 (C.A.), at para. 21.

[17] Damages for wrongful dismissal may include an amount for a bonus the employee would have received had he continued in his employment during the notice period, or damages for the lost opportunity to earn a bonus. This is generally the case where the bonus is an integral part of the employee’s compensation package: see Brock v. Matthews Group Limited (1988), 20 C.C.E.L. 110, at para. 44 (Ont. H.C.J.), aff’d (1991), 34 C.C.E.L. 50, at paras. 6-7 (Ont. C.A.) (appeal allowed in part on other grounds); Bernier, at para. 44 (Ont. S.C.), aff’d, at para. 5 (Ont. C.A.). This can be the case even where a bonus is described as “discretionary”: see Brock v. Matthews Group, at para. 44 (Ont. H.C.J.), aff’d, at paras. 6-7 (Ont. C.A.).

[18] Where a bonus plan exists, its terms will often be important in determining the bonus component of a wrongful dismissal damages award. The plan may contain eligibility criteria and establish a formula for the calculation of the bonus. And, as here, the plan may contain limitations on or conditions for the payment of the bonus. To the extent that there are limitations, the question may arise as to whether they were brought to the attention of the affected employees, and formed part of their contract of employment…

With respect to the issue of eligibility and the criterion that the employee be “actively employed”, Justice van Rensburg wrote the following on behalf of the court in Paquette:

[21] First, the appellant’s entitlement to bonus payments in the context of the wrongful dismissal action did not depend on whether he was notionally or in fact “actively employed” after his employment was terminated. The issue before the court was the determination of his damages, comprised of the compensation and benefits to which he would have been entitled but for the wrongful termination of his employment. Had the appellant been terminated within the 17 months’ reasonable notice fixed by the motion judge, he would have been “actively employed” when the bonuses were paid.

[22] In Taggart v. Canada Life Assurance Co. (2006), 50 C.C.P.B. 163 (Ont. C.A.), Sharpe J.A. explained the correct approach. In relation to the requirement for active service as a prerequisite for the accrual of pension benefits, and its impact on wrongful dismissal damages, he stated at para. 16:

Assuming that the pension plans can be read as requiring active service as a prerequisite for the accrual of pension benefits, I find unpersuasive the argument that this precludes damages as compensation for lost pension benefits. This argument, it seems to me, ignores the legal nature of the respondent’s claim. The claim is not … for the [benefits] themselves. Rather, it is for common law contract damages as compensation for the [benefits] the [employee] would have earned had the [employer] not breached the contract of employment. The [employee] had the contractual right to work and to be paid his salary and receive benefits throughout the entire … notice period.

[23] Similarly, in the present case the appellant’s claim was not for the bonuses themselves, but for common law contract damages as compensation for the income (including bonus payments) he would have received had TeraGo not breached his employment contract by failing to give reasonable notice of termination.

[24] The motion judge’s next error was in looking to the terms of the bonus plan, and its requirement of “active employment”, and then concluding that because that term was unambiguous, and the appellant could not meet the requirement, no amount for bonus would be included in his damages. The motion judge ought to have commenced his analysis from the premise that the appellant’s common law right to damages was based on his complete compensation package, including any bonus he would have received had his employment continued during the reasonable notice period, and then examined whether the bonus plan specifically limited or restricted that right.

[46] In summary, the question in this case was not whether the bonus plan was ambiguous, but whether the wording of the plan (which in this case formed part of the appellant’s employment contract) was effective to limit his right to receive compensation for lost salary and bonus during the period of reasonable notice.

[47] A term that requires active employment when the bonus is paid, without more, is not sufficient to deprive an employee terminated without reasonable notice of a claim for compensation for the bonus he or she would have received during the notice period, as part of his or her wrongful dismissal damages.

Justice van Rensburg reached a similar conclusion in Lin, where she wrote the following on behalf of the court (and the same panel):

[89] I reject the appellant’s assertion that these terms restrict Lin’s entitlement to compensation for lost bonuses in the event of wrongful dismissal. The wording does not unambiguously alter or remove the respondent’s common law right to damages, which include compensation for the bonuses he would have received while employed and during the period of reasonable notice. A provision that no bonus is payable where employment is terminated by the employer prior to the payout of the bonus is, in effect, the same as a requirement of “active employment” at the date of bonus payout. Without more, such wording is insufficient to deprive a terminated employee of the bonus he or she would have earned during the period of reasonable notice, as a component of damages for wrongful dismissal…

[90] And, as Goudge J.A. explained in Veer v. Dover Corporation (Canada) Limited (1999), 1999 CanLII 3008 (ON CA), 45 C.C.E.L. (2d) 183 (Ont. C.A.), at para. 14:

[T]he termination contemplated must, I think, mean termination according to law. Absent express language providing for it, I cannot conclude that the parties intended that an unlawful termination would trigger the end of the employee's option rights. The agreement should not be presumed to have provided for unlawful triggering events. Rather, the parties must be taken to have intended that the triggering actions would comply with the law in the absence of clear language to the contrary.

[91] While the issue in Veer was the employee’s entitlement to certain stock options following his dismissal without cause, this court’s interpretation of the effect of the “termination” term is equally apt in the present appeal. The phrase “employment is terminated by [Teachers’]” must be taken to refer to an employee’s lawful termination absent clear language to the contrary.

[92] To summarize: at para. 93 of his reasons, the trial judge stated “[w]here an employee is terminated without cause, he is entitled to bonus income he would have earned during the period of reasonable notice.” As I have already explained, the employee’s common law right is indeed the correct starting point for the analysis. The second step is to examine whether there is something in the bonus plan that removes the employee’s common law entitlement. The trial judge, at para. 85, recognized that parties may bargain for something other than what the common law provides. Although the trial judge did not specifically refer to the relevant entitlement provisions in the applicable plans, he clearly rejected their effectiveness in limiting Lin’s entitlement. For the reasons I have set out, I agree that these provisions did not limit the respondent’s common law rights.

In the result both employees received damages in lieu of the bonus payments they would have received had they been provided with working notice of the termination of their employment.

Commentary

To put it at its most basic, these cases are a “win” for employees and a “loss” for employers.

What may surprise most people is the notion of “working” notice. As is explained much more fully in my post Not All Employees are Entitled to Severance Pay, not all workers are entitled to severance pay. In Ontario, employers may legally terminate an employee’s employment by providing the employee with ‘working notice’ of the termination of his employment. What that means is that, under Ontario law employers are permitted to advise their employees that their employment will end on a future fixed date. Provided that sufficient notice is provided, a point often in issue in wrongful dismissal cases, nothing more is owed to the employee once that date arrives.

In cases where working notice is provided, the employee will be provided with the opportunity to earn his bonus or incentive payment.

Therefore, as the Court of Appeal observed, where the employer denies the employee the opportunity to attempt to earn the bonus, by removing the employee from the workplace and providing the employee with a payment in lieu of notice, as is legally permitted, the employer must provide the employee with all of the compensation and benefits that the employee would have earned during the notice period: ‘if it’s in the game, it’s in the game.’

The only way an employer can avoid such liability is with a very clearly defined bonus plan that rebuts the presumption that the employee would otherwise be entitled to such compensation. As these cases demonstrate, an obligation that the employee be “actively” employed on the date the bonus is paid will no longer be sufficient to rebut such presumption.

Takeaways for Employees with Labour Pains

The takeaway for employees whose employment is summarily terminated by their employers is that if you were entitled to a bonus payment while employed, then you are likely entitled to damages in lieu of such bonus during the reasonable notice period.

Determining the amount of reasonable notice to which an employee is entitled is complicated and more of an art than a science.

If you are an individual looking for assistance with respect to the termination of your employment, contact the professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP; we would be happy to be of service to you.

Takeaways for Employers with Labour Pains

The takeaway for employers is really twofold. First, if you compensate your employees by way of incentive payments or a bonus plan, be prepared to provide your employees with such payments even after the termination of their employment. The only way to avoid such a payment is to either: (a) provide the employee with working notice of the termination of his employment and then reasonably determine that the employee did not qualify for the receipt of such incentive payment; or (b) employ a very well-defined employment agreement that rebuts the common law presumption that the employee will be entitled to the continuation of such compensation during the reasonable notice period.

If you are an employer and want to limit your exposure on termination, contact the professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP; we would be happy to be of service to your business or organization.

Contact Me

To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.238.6321 x260.

Sean P. Bawden is a partner with Kelly Santini LLP, located in Ottawa, Ontario, Canada. He practices in the areas of employment law and civil litigation. He has also taught Trial Advocacy for Paralegals and Small Claims Court Practice at Algonquin College in Ottawa.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

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