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Employment - Benefits. Manastersky v. Royal Bank of Canada [Matthews]
In Manastersky v. Royal Bank of Canada (Ont CA, 2021) the Court of Appeal summarized the effect of the decision in Matthews (SCC, 2020), here with respect to bonus liability determination on wrongful dismissal breach:[10] Noting that how payments under incentive bonuses or plans are to be included in these damages is a recurring issue in the law of wrongful dismissal, the Supreme Court affirmed the two-step approach set out by this court in Lin v. Ontario Teachers’ Pension Plan, 2016 ONCA 619, 402 D.L.R. (4th) 325, Paquette v. TeraGo Networks Inc., 2016 ONCA 618, 352 O.A.C. 1, and Taggart v. Canada Life Assurance Co. (2006), 50 C.C.P.B. 163 (Ont. C.A.): at para. 49. The Supreme Court stated, at paras. 52-54, that the two-step approach rests on two key principles:(i) When employees sue for damages for wrongful dismissal, they are claiming for damages as compensation for the income, benefits, and bonuses they would have received had the employer not breached the implied term to provide reasonable notice; and
(ii) A contract of employment effectively “remains alive” for the purposes of assessing the employee’s damages, in order to determine what compensation the employee would have been entitled to but for the dismissal. [11] Building on those two principles, the Supreme Court, at para. 55, affirmed a two-step approach to determine whether an employee dismissed without cause is entitled to damages in respect of a bonus or incentive benefit:Courts should accordingly ask two questions when determining whether the appropriate quantum of damages for breach of the implied term to provide reasonable notice includes 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, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right? [12] The Supreme Court further clarified that resorting to the so-called “integral” test does not play a role in all cases. Where there is doubt about whether the employee would have received a discretionary bonus during the reasonable period of notice, resorting to the test of whether a benefit or bonus is “integral” to the employee’s compensation can assist in answering the question of what the employee would have been paid during the reasonable notice period: Matthews, at para. 58. By contrast, where there is no doubt that the employee would have received a bonus or incentive benefit during the notice period, there is no need to ask whether the bonus was “integral” to the employee’s compensation: Matthews, at para. 59. At the remand hearing, counsel for Mr. Manastersky acknowledged that, on the facts of this case, the issue of whether the incentive benefit was “integral” does not arise because the entitlement to payments under the Mezzanine CIP was not discretionary.
[13] The Original Decision identified the legal principles applicable to the appeal as those set out in Lin, Paquette, and Taggart, including the application of the two-step approach: Original Decision, paras. 39-43. Consequently, I do not see the exercise on this remand as applying any new legal principles identified in Matthews to the case on appeal; the legal principles affirmed in Matthews were those applied in the Original Decision. Instead, I propose to look afresh at the application of the two-step analysis to the case on appeal.
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[21] Under the Matthews framework, the issue of any limitations on an employee’s entitlement to bonus/incentive benefit compensation typically (but not invariably) would arise under the second step – namely, do the terms of the employment contract or bonus plan unambiguously take away or limit a common law right or entitlement upon the termination of employment? The factual twist in the present case is that the issue of any limitation on Mr. Manastersky’s entitlement to further incentive benefits during his period of reasonable notice falls more under Matthews’ first step: would he have been entitled to receive payment of a CIP incentive benefit as part of his compensation during the reasonable notice period? However, as recognized in the Original Decision, at para. 51, incentive-benefit plans vary greatly in their structure and pay-out terms, so the analysis in respect of one type of incentive plan may not be transferable to the analysis of another type of incentive plan.
[22] In Matthews, the employee’s entitlement to a long-term incentive plan payment – the occurrence of a “Realization Event” such as the sale of the employer – was limited by the incentive plan’s requirement that the employee be a “full-time employee” at the date of the Realization Event. The Supreme Court held that the first step was clearly satisfied because the Realization Event fell within the employee’s reasonable notice period; but for the employee’s dismissal, he would have received the incentive payment: Matthews, at para. 59. In considering the second step, the Supreme Court held that the language of “full-time employee” did not limit the employee’s entitlement to the incentive payment when the Realization Event occurred during the period of reasonable notice: Matthews, at paras. 65-67. . Milwid v. IBM Canada Ltd.
In Milwid v. IBM Canada Ltd. (Ont CA, 2023) the Court of Appeal considered a terminated employee's entitlement to contractual benefits:[7] The respondent was granted RSUs by the appellant pursuant to his Equity Award Agreement, which sets out the terms, conditions, performance requirements, limitations, and restrictions applicable to an award, including country-specific terms (the “Equity Award”). He was to receive 888 RSUs, half of which were to vest on November 14, 2020, and the other half of which were to vest on November 14, 2022. On August 14, 2020, the RSUs were cancelled. The motion judge found that the respondent was entitled to damages for the value of the RSUs that would have vested within the reasonable notice period, which was fixed at US$55,619.88.
[8] The appellant submits that the motion judge erred in awarding these damages because, pursuant to the terms of the Equity Award, the respondent was ineligible to receive the RSUs as his employment had been terminated. In support of this argument, the appellant relies on a country-specific definition of “Termination of Employment” applicable to the respondent’s Equity Award, which states:Termination of Employment
For the purposes of the Plan and this Agreement, you shall be considered to be terminated from your employment with IBM or its affiliate on the later of the following dates:
a. The date you cease to provide services to the employer or any affiliated company, regardless of whether such date is the last date upon which the employer is required by common law, agreement, policy, or otherwise to pay you termination pay in lieu of notice of termination of employment; or
b. The date upon which the employer is required by statute (i.e. applicable provincial employment/labour standards legislation) to pay you termination pay in lieu of notice of termination of your employment. [9] There is no dispute that in order for the appellant to rely on this term to exclude the respondent from participating in the Equity Award, the exclusionary language must be clear and unambiguous in limiting or eliminating the respondent’s common law rights: Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26, [2020] 3 S.C.R. 64, at para. 64.
[10] The motion judge held that the Termination of Employment provision is ambiguous:Under clause (a), an employee is considered terminated on the “date (the employee) cease to provide services to the employer”. With the introduction of the word “regardless”, after this phrase to explain the date that the employee ceases to provide services, in my view, the clause suggests that an employee may be considered to be terminated, when the employee ceases to provide services to the employer, which may be the last date of the common law notice period. There is no other interpretation from the provision which state that an employee can be considered to be “terminated” on the date the employee “cease to provide services to the employer” “regardless of whether such date is the last date upon which the employer is required by common law, …to pay termination pay…” The reference to “such date” refers back to the date the employee “cease to provide services”, and contained, as it is, in the same sentence, and the sequence of the words, “such date” is also tied to the “last date” that the employer is required to pay “termination pay”. What the clause does not clearly do, is exclude the common law notice period from consideration in establishing the employee’s date of termination. Accordingly, the date the employee “cease to provide services” extends to the “last date” of the common law notice period. [Emphasis in the original.] [11] The appellant submits that the motion judge erred in law in straining to create an ambiguity where none existed, contrary to the dicta from this court in Amberber v. IBM Canada Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169, at para. 63. We disagree. In our view, the wording of the provision is ambiguous. The inclusion of the phrase “regardless of whether such date” in subsection (a) created uncertainty about when an employee becomes ineligible to participate in the Equity Award and leaves available a reasonable interpretation that eligibility is not extinguished until the end of the notice period at common law. Counsel for the appellant fairly conceded that if there is an ambiguity in the provision, it is not operative to extinguish the respondent’s right to participate in the Equity Award. Therefore, we dismiss this ground of appeal.
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