Key 2020 employment law decisions, Ontario division
Wednesday, January 06, 2021 @ 11:39 AM | By Inna Koldorf
A. Termination provisions
The uncertainty around termination provisions in employment contracts in Ontario continued in 2020. In June, the Ontario Court of Appeal released its decision in Waksdale v. Swegon North America Inc. (2020 ONCA 391), in which it found that although drafted properly, a termination without cause provision in a contract was unenforceable because the termination with cause provision in the same contract violated the Employment Standards Act, 2000 (ESA). The Court of Appeal came to its conclusion despite the facts that the contract contained a severability clause, and that the termination at issue was without cause (and therefore the enforceable provision was the only one triggered). The court found that the termination provisions in an employment contract must be interpreted as a whole, even if they are found in different parts of the contract.
Unfortunately for employers and their lawyers, the original summary judgment decision did not set out the termination with cause provision at issue, so it was difficult for anyone not involved in the litigation to know with any certainty why the provision offended the ESA.
As employers across the province were preparing to amend the termination provisions in their employment contracts (once again), the defendant in Waksdale applied for leave to appeal to the Supreme Court of Canada. Stay tuned for the conclusion to the termination provisions saga in next year’s review of the top employment and labour law cases of 2021.
Although it did not make the top-five cases, honourable mention goes to Rutledge v. Canaan Construction Inc. 2020 ONSC 4246, in which the Divisional Court based its decision on a number of hypotheticals. In Rutledge, the plaintiff was hired as a construction employee and remained a construction employee throughout his employment with Canaan. He was placed on a temporary layoff in October 2017. He filed a wrongful dismissal claim after starting employment elsewhere in December 2017.
The ESA’s regulations provide that construction employees are not entitled to statutory notice of termination of their employment (or pay in lieu of notice) and statutory severance pay. As a result, Canaan argued that Chris Rutledge was not entitled to notice or pay in lieu of notice under the ESA or under his employment contract (which limited his entitlement to the ESA and confirmed that he would not be entitled to notice of the termination of his employment).
The small claims court disagreed with the employer and awarded Rutledge 9.5 weeks of pay in lieu of notice. On appeal, the Divisional Court upheld the small claims court’s decision, reasoning that although Rutledge was hired as and remained a construction employee for his entire employment relationship with Canaan, if his position was to change to a non-construction position, then the termination provision would be unenforceable. The court further reasoned that if the employer was to grow to more than 50 employees, and if the employer was to discontinue its business, or if the employer’s payroll was to grow to more than $2.5 million, then Rutledge would be entitled to statutory severance pay. Although none of these hypotheticals was rooted in the reality of Rutledge’s employment relationship with Canaan, the potential that they could have happened was enough for the Divisional Court to uphold the entitlement to notice found by the small claims court.
B. Bonus entitlement
In Matthews v. Ocean Nutrition Canada Ltd. (2020 SCC 26), David Matthews was a senior executive with Ocean Nutrition. Toward the end of his employment, the company’s new chief operating officer engaged in a campaign to marginalize Matthews, leading to Matthews’ resignation from his position in 2011.
While employed with the company, Matthews participated in the company’s long-term incentive plan (LTIP). Under the program, the sale of the company would trigger significant payments to employees. Approximately 13 months after Matthew’s resignation, the company was sold. Had Matthews remained employed with the company, he would have received a payment of $1.1 million.
Matthews sued for constructive dismissal, alleging, among other things, that he was entitled to the bonus payment triggered by the sale of the company. Ocean Nutrition argued that since the LTIP states that employees would only be entitled to the payment if they were full-time employees at the time of the sale, and that the payment would not be made in connection with an employee’s resignation or severance calculation, Matthews was not entitled to the payment.
In determining Matthews’ claim, the court adopted the two-step approach for analyzing claims for the loss of bonuses or incentive plan entitlements in wrongful dismissals from the Ontario Court of Appeal’s decision in Paquette v. TeraGo Networks Inc. (2016 ONCA 618): (1) would the employee have been entitled to the payment during the notice period?; and (2) If so, do the terms of the employment contract or bonus/incentive plan unambiguously take away or limit that common law right?
A unanimous Supreme Court agreed with the trial judge that Matthews had been constructively dismissed. He was entitled to 15 months of reasonable notice. Matthews was prima facie entitled to damages as compensation for the lost bonus under the LTIP since the payment would have been triggered during his 15-month notice period and was not discretionary. The LTIP did not unambiguously limit or remove Matthews’ common law rights to the payment. Language requiring an employee to be “full time” or “active” is not sufficient to limit an employee’s common law damages. Had Matthews been provided with proper notice of the termination of his employment, he would have been an active, full-time employee when the payment was triggered, and would have received the payment.
This is part one of a two-part series.
Inna Koldorf is a partner in Miller Thomson LLP’s labour and employment law group, where she advises employers on labour, employment and human rights issues.
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