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CONTRACT OF EMPLOYMENT - Breach - Remedies - Express terms - Remuneration - Bonuses

Friday, October 09, 2020 @ 1:43 PM  


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Appeal by the plaintiff employee, Matthews, from a judgment of the Nova Scotia Court of Appeal that varied the trial judgment which had found that he was constructively dismissed and entitled to pay in lieu of a 15-month notice period, plus damages equivalent to what he would have received under the respondent’s long-term incentive plan (LTIP). Beginning in 1997, Matthews, an experienced chemist, occupied several senior management positions with the respondent. In 2007, the respondent’s new Chief Operating Officer began a campaign, which included repeated incidents of dishonesty, to marginalize Matthews. The officer removed individuals from Matthews’ supervision, reduced his responsibilities and excluded him from initiatives. Matthews’ employment contract included the LTIP, which provided for a payment upon the sale of the company. Approximately 13 months after Matthews’ departure from company, the company was sold for $540 million. The trial judge found that Matthews was constructively dismissed and was owed a reasonable notice period of 15 months as well as damages of $1,086,893, equivalent to what he would have received under the LTIP. A majority of the Court of Appeal upheld the reasonable notice period but found that Matthews was not entitled to damages related to the lost LTIP payment. On appeal, the only issue was Matthews’ entitlement to the LTIP payment.

HELD: Appeal allowed. The Court of Appeal erred in not awarding Matthews the amount of the LTIP as part of his common law damages for breach of the implied term to provide reasonable notice. The appellate court erred by focusing on whether the terms of the LTIP were plain and unambiguous instead of asking what damages were appropriately due for the respondent’s failure to provide Matthews with reasonable notice. Courts were required to ask two questions when determining whether the appropriate quantum of damages for breach of the implied term to provide reasonable notice included bonus payments and certain other benefits. Would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period? If so, did the terms of the employment contract or bonus plan unambiguously take away or limit that common law right? On the first question, it was uncontested that the sale of the company occurred during the notice period. But for Mr. Matthews’ dismissal, he would have received an LTIP payment during that period. In such circumstances, there was no need to ask whether the LTIP payment was integral to his compensation. On the second question, since the LTIP was a “unilateral contract”, the principle of contractual interpretation that clauses excluding or limiting liability would be strictly construed applied with particular force. The employment agreement did not unambiguously limit or remove Matthews’ common law right to receive damages as compensation for the lost bonus. The trial judgment awarding Matthews damages equivalent to the LTIP payment was restored.

Matthews v. Ocean Nutrition Canada Ltd., [2020] S.C.J. No. 26, Supreme Court of Canada, R. Wagner C.J. and M.J. Moldaver, S. Côté, R. Brown, M. Rowe, S.L. Martin and N. Kasirer JJ., October 9, 2020. Digest No. TLD-October52020011-SCC