Labour & Employment Law Blog

The Supreme Court of Canada Reaffirms and Clarifies Foundational Principles of Employment Law and Discusses the Right to Bonus when Terminated

The Supreme Court of Canada Reaffirms and Clarifies Foundational Principles of Employment Law and Discusses the Right to Bonus when Terminated

The Supreme Court of Canada has recently released the decision of Matthews v. Ocean Nutrition Canada Limited, 2020 SCC 26.  This decision dealt with whether or not a dismissed employee is entitled to bonuses and other payments as compensation if they had been continued to be employed during the notice period.

The plaintiff, David Matthews (“Mr. Matthews”), was an experienced chemist who worked for the defendant, Ocean Nutrition Canada Limited (“Ocean”), in a senior management role.  Beginning in or around 2007, Mr. Matthews began to experience repeated incidents of dishonesty at the hands of a new superior.  Mr. Matthews also had his role reduced at Ocean and became more and more ostracized within the company.  The superior would lie directly to Mr. Matthews in an effort to minimize his responsibility.

Eventually, this all culminated in Mr. Matthews leaving Ocean.  However, some months after Mr. Matthews’ departure from Ocean, Ocean was sold.  This is significant because Mr. Matthews was part of Ocean’s long-term incentive plan (“LTIP”) which contractually was to provide Mr. Matthews payment upon the sale of Ocean.  The purpose of the LTIP was to provide a reward to senior employees and to be an incentive to those employees to contribute to Ocean’s achievements.  However, Ocean refused to provide any payment to Mr. Matthews under the LTIP because Mr.  Matthews was not “actively employed” at the time of the sale of Ocean.

Therefore, Mr. Matthews sued Ocean alleging he was constructively dismissed by Ocean and that Ocean acted in a manner that was “oppressive” and “unfairly prejudicial” to Mr. Matthews’ interests.  He also alleged that he was dismissed by Ocean in a way that amounted to bad faith and was a breach of Ocean’s duty of good faith toward Mr. Matthews.

This case was first heard by Nova Scotia’s Superior Court.  The trial judge concluded that Mr. Matthews was constructively dismissed by Ocean and owed notice.  The trial judge also concluded that Mr. Matthews was entitled to the LTIP.  However, Nova Scotia’s Court of Appeal disagreed.  They did agree with the trial judge that Mr. Matthews was constructively dismissed by Ocean.  However, they disagreed that Mr. Matthews was entitled to the LTIP as he was not “actively employed” at the time of the sale of Ocean.

The Supreme Court of Canada disagreed with Nova Scotia’s Court of Appeal.  The Supreme Court held that Mr. Matthews was entitled to the LTIP as part of the common law damages for notice.  The court set out that the first question is whether Mr. Matthews would have been entitled to the LTIP payment as part of his compensation during the reasonable notice period. Since this date of sale or the “realization event” took place within the reasonable notice period, then Mr. Matthews is prima facie entitled to the damages for the LTIP payment as part of his common law notice damages.

The Supreme Court then set out a second step, which was to determine whether the LTIP contract itself has language that would unambiguously limit or remove Mr. Matthews’ common law rights.  Therefore, the Supreme Court looked directly at the wording of various provisions contained within the LTIP contract and concluded that it did not unambiguously limit or remove Mr. Matthews’ common law rights. The Supreme Court agreed with the trial judge and held that Mr. Matthews was entitled to receive damages equal to what he would have received pursuant to the LTIP.

The Supreme Court also spoke to good faith and set out that a claim of a breach of the duty of good faith is a separate claim from the failing to provide reasonable notice.

Our Thoughts

The decision of the highest court in the country is instructive on several fronts. Firstly, if employees are entitled to bonus as part of the compensation only clear language will allow the employer to escape the obligation to pay it. Even language that may at first appear “air-tight” may be deemed to be insufficient to avoid payment.
The decision likewise reminds that employers (and employees) have an obligation to be honest in the course of the employment relationship.

Finally, courts will take into account not only the actual moment of the employee’s dismissal when assessing whether the employee was treated fairly but various events and incidents leading to the actual point of termination.

The above article is for general information purposes only, does not constitute legal advice or create a solicitor-client relationship. Because each case is unique and factually driven, if you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere. We represent clients in the Greater Toronto Area including Toronto, North York, Markham, Vaughan, Thornhill, Newmarket, Aurora, Brampton, Mississauga, Barrie, Ajax, Whitby, Pickering and Oshawa.