Employees entitled to bonuses paid during notice periods after losing jobs, Supreme Court rules
Landmark decision comes from dispute between scientist and supplements firm
In what's being described as a landmark ruling for employment law, the Supreme Court of Canada has ruled that employees are still entitled to bonuses paid during their reasonable notice periods after they have lost their jobs.
The Supreme Court made the ruling on Friday in a dispute involving a Nova Scotia scientist and Ocean Nutritional Canada Ltd., a supplements company that primarily produces Omega-3 or cod liver oil. The applicant, David Matthews, was constructively terminated from his job in senior management and was, as a result, not paid a $1.06 million bonus linked to a long-term incentive program (LTIP) payout that was triggered by the sale of the company 13 months later.
In a ruling delivered by Justice Nicholas Kasirer, the Supreme Court ruled that Matthews wasn't given reasonable notice — a period of 15 months, in his case due to his elevated role — of his employment termination and a contract isn't considered terminated until that period is up. Had he been given that time, he would have still been employed when the company was sold and he would have collected the bonus, the ruling said.
“Had (Matthews) been given proper notice, he would have been full-time or actively employed throughout the reasonable notice period,” Kasirer wrote. “(Matthews) should therefore be aware the amount of LTIP as part of his common law damages for breach of the implied term to provide reasonable notice.”
Levitt LLP employment lawyer Howard Levitt, who represented Matthews in court, said the ruling should of interest to Canadians who receive any kind of bonus, incentive or commission as part of their pay — a number he estimates as being half the population.
The ruling won't simply benefit the executives who have similar LTIP programs or stock options in place, according to Levitt, who writes a column on employment law for the Financial Post twice a week.
The average Canadian, who might earn a Christmas bonus or sales commissions, would also be entitled to receive them during their notice periods.
“You don't get bonuses if you're not there at the time, even if you're wrongfully dismissed, and that's rife in most employment contracts right now,” said Levitt. “Let's assume some average worker was badly treated at work and couldn't take it anymore and left and therefore forfeited their Christmas bonus, well according to this case, they'll get the Christmas bonus.”
Matthews had worked for Ocean since 1997 and was entitled to an LTIP, which would pay him and other senior managers a bonus when a “realization event,” such as the sale of the company, occurred.
The purpose of the program, Matthews argued, was to reward employees for their loyalty and retention. Matthews stayed with the company even after a new chief operating officer was appointed in 2007 and that person began “a campaign to push Matthews out of operations and minimize his influence.” The COO ostracized Matthews and then lied about his efforts to do so, the ruling said.
Three years later, Matthews's situation in the company worsened when a new chief executive officer was appointed. But still, Matthews chose to stay with Ocean, as he suspected the company was going to be sold in the near future.
In June 2011, Matthews was constructively dismissed and 13 months later, Ocean was sold for $540 million to Koninklijke DSM N.V., a Dutch nutritional and health company.
According to Levitt, the ruling will likely force a strong majority of Canadian employers to revisit the language in their contacts surrounding bonuses and when they are withheld because of a job loss. Employees will have to be made aware of the contract changes and will be prompted to sign off on them, Levitt said. If they don't, they may lose their jobs, in which case they will receive the bonuses they were entitled to anyway.
“I'd say virtually no existing plan is presently enforceable, which means employers are going to have to go back to the drawing board,” Levitt said.