Ted's Blog

SCC confirms employer must pay nearly $1.1 million to former employee

Matthews v. Ocean Nutrition Canada Ltd. is a recent decision of the Supreme Court of Canada (the "SCC") that dealt with the issue of how much money an employee is entitled to when successfully suing a former employer for wrongful dismissal (i.e. when an employee is dismissed by an employer without adequate notice).
In this case, the employee and the employer agreed that, if the employee was a full-time employee as of the date the employer (a corporation) was sold, the employee would receive a payment from the employer (the "Incentive Agreement"). The arrangement was designed to reward the employee for his past contributions and act as an incentive to continue contributing to the employer's success.
Eventually, the employee's employment was terminated without any notice from the employer. About 13 months later, the employer was sold for $540 million. The employer did not pay anything to the employee in connection with the sale because the employee was not a "full-time employee" at the time.
Fast forward to the SCC's decision, in which it decided that the employer did have to pay the employee the amount he would have been entitled to had he been a "full-time employee" at the time of sale - nearly $1.1 million.

How did the SCC get there? The result might seem absurd in light of the simplicity of the employer's position that the Incentive Agreement was clear that the employee wasn't entitled to the any payment unless he was a full-time employee at the time of sale.

The answer lies in the nature of the employee's claim against the employer. The basis of the employee's claim was not an allegation that the employer breached Incentive Agreement due to its failure to pay. Rather, the employee's claim was concerned with the employer's breach of his employment contract by its failure to provide him with reasonable notice of his dismissal. This might seem like a minor distinction, but it actually is a significant one.

By the time this case made its way to the SCC, a lower court had already determined that the employee had been entitled to receive 15 months' notice of the termination of his employment. It was determined the employer had breached the employment contract by not giving him the required 15 months' notice (having given him no notice).

One of the issues the SCC dealt with was determining the amount of the employee's financial losses (or "damages") he suffered due to the employer's failure to provide him adequate notice and specifically whether that amount included the $1.1 million. The SCC clarified the following approach for deciding whether a particular payment (like a bonus, incentive payment etc.) is included in the calculation of an employee's wrongful dismissal damages:

  • Determine whether, but for the employee's dismissal, the employee would have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period.
  • If so, determine whether the terms of the employment contract or bonus plan clearly and unambiguously take away or limit the employee's common law right to such compensation.

Applying these two questions to the case before it, the SCC first determined that the employee would have received the approximately $1.1 million had he not been dismissed since the event triggering his entitlement to that payment (the sale of the employer) occurred before the expiry of the 15-month notice period.

Second, the SCC reviewed the wording relied on by the employer to argue that the parties had clearly agreed in the Incentive Agreement that the employee would only be entitled to the payment if he was a full-time employee as of the date of sale. The SCC concluded the "full-time employment" requirement did not clearly and unambiguously take away the employee's entitlement to full compensation for the 15-month notice period, including the $1.1 million. After all, had the employee been given the 15-months' notice to which he was entitled, he would have been a "full-time employee" at the time of sale.

So while the wording at issue might have clearly set out the conditions required the employee's entitlement to a direct payment of the approx. $1.1 million under the Incentive Agreement, the SCC found that such wording didn't go so far as to limit the employee's claim for all financial losses/damages (including the $1.1. million) in the event he was wrongfully dismissed.

So, in the end, the SCC determined the employer had to pay the employee the approx. $1.1 million as part of his claim for wrongful dismissal damages, even though he wasn't a "full time employee" (and hadn't been for over a year) before the sale of the employer.

The outcome of this case provides a valuable lesson for employers who wish to limit the extent of their liability in the event they are faced with a wrongful dismissal lawsuit. Unambiguous language is required as part of an employee's employment contract to clearly limit an employee's common law entitlements to damages in the event of a wrongful dismissal. Simply agreeing that the employee has to be "actively employed" or be a "full-time employee" in order to receive any particular payment is not likely to make the cut, as confirmed by the SCC.

Note: This a reprint of an article by Peter Mueller of Taylor McCaffrey.