DAVID MATHEWS v. OCEAN NUTRITION CANADA LIMITED (2020) SCC 26

Wrongful, constructive dismissal will entitle the employee to receive incentive compensation for breach of duty to provide reasonable notice of termination.

Appellant an experienced chemist, was employed with the respondent company, his senior management position entitling him to the company’s Long-term Incentive Plan (LTIP). LTIP granted employees rewards for previous contributions and provided incentives for them to continue making successful contribution to the company. In case of a ‘realization event’, the payments to employees under LTIP would become payable. The Appellant was constructively dismissed from his position, 13 months before the respondent company was sold off, which triggered the LTIP payments.

However, Appellant’s claim for getting incentive compensation of LTIP in pursuance of damages for wrongful dismissal were rejected by the respondent whereupon Appellant filed a suit of damages in the trial court. The trial judge and subsequently the Court of Appeal ruled in favour of the Appellant’s constructive dismissal. However, Court of Appeal held that Appellant cannot be granted damages for losing LTIP payment. Thereafter, appeal was preferred in the Supreme Court of Canada. The main contention deliberated in front of the court in the present case pertains to inclusion of incentive payment under LTIP for calculation of damages due to failure of the respondent company to give reasonable notice on Appellant’s termination.

The court analysed the scope of protection by first, determining whether common law rights of an employee entitle them to bonus or benefit as part of the compensation during the notice period. Second, whether the terms of the employment contract or bonus unambiguously take away or limit that common law right. [Paquette v. TeraGo Networks Inc, 2016 ONCA 618]. On the first question, the court held that Appellant in pursuance of his common law right is entitled to LTIP payment since he would have been awarded the same during his reasonable notice period. Also, since there is a duty to act honestly for ensuring good faith in implementation of employment contracts. [Bhasin v. Hrynew [2014] 3 S.C.R. 494] damages for wrongful dismissal impose duty on the employer to compensate for the initial implied term of employment contract, which was to provide reasonable notice. Payment in lieu being one of the essential components of compensation in the contract, one can claim breach where there is failure to pay the same. Since, LTIP established payment of incentive over the notice period, court found it unnecessary to establish incentive as an “integral component” of the employee’s compensation.

On the second issue, court held that language of LTIP did not unambiguously restrict or remove Appellant’s common law right of receiving incentive compensation in lieu of reasonable notice damages. The court further held that language for rebutting common-law entitlement should be “absolutely clear and unambiguous”. Incorporation of contractual terms that required an employee to be “active or full time” or which limited entitlements on termination “without cause”, were not clear or unambiguous to rebut common law presumption. Thus, employment contract will continue to subsist during the reasonable notice period as if the employee remained “active” or “full-time”. Further, severance is a distinct concept from damages and thus appellant’s right or claim with respect to wrongful dismissal cannot be limited.

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