header_iceberg.jpg

Posts tagged: Severance package

Alberta Court of Appeal Denies Incentive Compensation to terminated Employees; Ontario Court of Appeal Does Not

By , June 6, 2017 4:31 pm

As we have written in the past, there is significant legal uncertainly as to whether an employee is entitled to receive incentive compensation during the common law reasonable notice period.

An Alberta Court of Appeal decision appears to have rejected the Ontario Court of Appeal’s approach to interpreting incentive compensation plans for terminated employees. The Supreme Court of Canada recently denied leave to appeal the Alberta case.

In Paquette v. TeraGo Networks Inc., 2016 ONCA 618, the Ontario Court of Appeal concluded that the wording of a bonus plan was crucial in determining whether an employee is entitled to be paid incentive compensation during the common law reasonable notice period. The phrase in a plan which required an employee to be “actively employed by TeraGo on the date of the bonus payout” was found not to limit the employer’s obligation to pay an employee the incentive compensation he would have earned during the common law reasonable notice period. The Court stated that language like this needed “more” to limit the employee’s claim to the bonus.

Styles v. Alberta Investment Management Corporation –  Facts

In this Alberta decision, Mr. Styles entered into an employment contract that contained a long term incentive plan (“LTIP”) which allowed employees to earn a bonus based on performance. As a condition of receiving this payment, the employee had to be employed for four years.  Employees also had to be actively employed to be paid the LTIP. Mr. Styles was terminated without cause after three years, meaning that he was not entitled to any LTIP payments. He sued for payment of this compensation.

The relevant clause in the LTIP stated:

Unless otherwise stipulated, participants must be actively employed by AIMCo, without regard to whether the Participant is receiving, or will receive, any compensatory payments or salary in lieu of notice of termination on the date of payout, in order to be eligible to receive any payment.

As per the guidelines above, entitlement to an LTIP grant, vested or unvested, may be forfeited upon the Date of Termination of Active Employment without regard to whether the participant is receiving, or will receive, any compensatory payment or salary in lieu of notice of termination.

“Date of Termination of Active Employment” means the termination date specified by AIMCo in the termination notice. (emphasis added)

Styles v. Alberta Investment Management Corporation – Trial Decision

The trial judge began their analysis by applying the principle of good faith contractual performance, which provides that parties to a contract must perform their contractual duties honestly and reasonably. From this principle, the trial judge recognized a new common law duty which requires employers to exercise discretionary powers reasonably.

Looking at the wording of the contract and LTIP provisions, the trial judge found there were two discretionary decisions that the employer could make, whether to pay the LTIP, and whether to terminate the employee without cause.

The judge held that the Employer breached this new duty by failing to give reasons for the termination or why he was being denied his LTIP payments. By failing to give reasons, the employer breached its duty to exercise its discretion reasonably.

The judge awarded the employee’s LTIP payments, totalling $444,205.

Styles v. Alberta Investment Management Corporation – Appeal Decision

The Alberta Court of Appeal resoundingly overturned the trial judge’s decision. The Court found that the contract clearly provided that Mr. Styles had to be actively employed to receive the LTIP payment, and  there was nothing in the contract that gave the employer a discretion whether to provide the LTIP payments or not.

Further, the Court rejected the trial judge’s new common law duty to exercise discretionary powers reasonably and stated that  terminating an employee without cause without providing any reasons in Alberta is fundamental in allowing an employer to choose its composition of its workforce.

The Court of Appeal found that Mr. Styles was not entitled to his LTIP worth $444,205.

While the Court of Appeal considered the Paquette decision, it did not address the Ontario Court’s approach to incentive compensation plans. Unfortunately, the Supreme Court of Canada denied Mr. Styles’ request for leave to appeal.

Lessons

  • As discussed before, some Ontario judges have found ways to override the wording of bonus plans and have awarded terminated employees incentive compensation during the common law reasonable notice period, despite not being actively employed.
  • The Alberta case, is a welcome decision for employers, as it came to a different conclusion.
  • The Alberta Court of Appeal held that employers are not required to give reasons when terminating an employee without cause. There are, however, certain issues that an employer should consider before terminating an employee without just cause such as whether the employee has recently raised a human rights or harassment complaint and how much notice of termination (or pay in lieu of notice) the employee is entitled to receive.

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]

 The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

An update on mitigation: What happens when a wrongful dismissal case gets to court while the employee is still unemployed?

By , April 3, 2017 8:42 am

The Basics

A wrongful dismissal occurs when an employer does not provide enough notice of termination. An employee can claim damages equal to the remuneration the employee would have earned during the applicable notice period. During the notice period, an employee is subject to the “duty to mitigate,” which means they must look for alternative employment. Notice periods can be as long as 24 months, and even longer in exceptional circumstances. Increasingly, wrongful dismissal cases are getting to court before the reasonable notice period has expired. In these cases, the employee is still subject to the duty to mitigate for the balance of the notice period. In a recent case, the Superior Court of Justice had to answer the question of how the issue of future mitigation should be recognised in the calculation of damages given the fact that the period of reasonable notice had not yet expired.

Patterson v IBM Canada Ltd, 2017 ONSC 1264

In Patterson v IBM Canada Ltd., the hearing took place in February 2017, just over eight months after the Mr. Patterson’s employment was terminated. The judge found that the reasonable notice period in Mr. Patterson’s case was 18 months.

Mr. Patterson claimed that, given his job search history thus far, his prospects of finding alternative employment were low, and he should therefore receive the full 18 months’ pay. IBM suggested the court should discount any award of damages by 10% to reflect the possibility of future mitigation, i.e. that Mr. Patterson may obtain employment during the remainder of the notice period.

The judge noted that the courts have used several approaches in these cases, the two main ones being the “trust and accounting” approach (where the plaintiff is required to account to the defendant for future income if any is earned during the notice period) and the contingency approach (which is the approach IBM was suggesting).

In this case, the judge preferred the contingency approach, and reduced Mr. Patterson’s damages accordingly. The judge found that if the trust and accounting approach were to be applied, Mr. Patterson would have no incentive to continue in his job search. Furthermore, the contingency approach avoids the possibility of future legal entanglements between the parties.

Lessons to be Learned

There is no consensus on which approach an Ontario judge will follow when a wrongful dismissal case is decided before the end of the reasonable notice period. If you are planning on dismissing a long-term employee, it is important to consult with a lawyer to discuss whether a severance package with a built-in contingency approach can be offered, rather than leaving that decision to a judge after spending significant legal costs. The lawyer can also explain the extent of the employee’s obligation to mitigate (look for work) throughout the litigation process.

“The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.”

Preparing an Employee Severance Package: Five Reasons to Hire A Lawyer

By , March 31, 2017 1:29 pm
  1. A lawyer can explain your obligations under the Employment Standards Act. Did you know there are employees who are not entitled to vacation pay, overtime pay, termination pay and severance pay under this law? For employees who do not work a regular work week did you know there is a formula to determine how to calculate termination pay?
  1. An employer can explain your obligations to provide reasonable notice of termination at common law. If the employee has not signed an employment contract with an enforceable termination clause then a lawyer can provide you with an idea of what is “reasonable” notice of termination in the circumstances. An lawyer can also inform you whether you are legally required to pay an employee who has received a bonus during the notice period.
  1. An employer can explain whether you are exposed to non-wrongful dismissal damages. For example, if the employee is disabled or has recently returned from sick leave or a pregnancy leave the employer may be exposed to damages under human rights legislation.
  1. A lawyer can suggest the best way to structure termination payments. Sometimes a lump sum payment is the best option and sometimes periodic payments are a better option. Another issue to carefully consider is which benefits to continue and for how long? Did you know that some insurers will not continue some employee benefit coverages after an employee is terminated?
  1. A lawyer can suggest ways to minimize the out of pocket costs associated with a termination. This includes steps you can take to help the employee find alternative employment which generally reduces an employer’s monetary exposure. For example, in what circumstances is it a good idea to offer the terminated employee a reference or outplacement counselling?

 

For over 25 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416 317-9894 or at [email protected]

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

 

 

What Terms Are Generally Included in an Employee Severance Package?

By , May 14, 2014 10:58 am

What Terms Are Generally Included in an Employee Severance Package?

Every employee termination is unique. Accordingly, there is no one size fits all employee severance package. There are, however, several terms that that are often included in a severance package.

Assuming an employee is not terminated for just cause, and the employee did not sign an employment contract with an enforceable termination clause, here are seven (7) such terms.

1. Pay for all monies owed up to the employee’s last day of employment.

In addition to unpaid salary, this can include monies owed for accrued but unpaid vacation pay and/or overtime pay, commissions owing, and in some cases bonus owing.

2. Notice of termination (or termination pay) and any severance pay owing under the Ontario Employment Standards Act (ESA)

An employee is entitled to up to 8 weeks’ notice of termination (or pay in lieu of notice); and, for employees with at least 5 years service with an employer with Ontario payroll of at least $ 2.5 million, up to 26 weeks’ severance pay.

 3. Benefit continuation during the minimum notice period under the ESA

An employer is required to continue certain group benefits during the minimum statutory notice period (i.e up to 8 weeks).

 4. An oral and/or verbal reference

Since the courts will deduct any income an employee earns during the “reasonable” notice period when calculating wrongful dismissal damages, it is in the employer’s interest for the employee to obtain alternative employment as quickly as possible. Accordingly, we recommend that an employer always consider providing a reference to an employee in a without cause termination.

5. Outplacement counselling

Outplacement counselling helps an employee get ready for the job market. If the employee has been out of the job market for a long time and/or has non-transferable skills then we recommend that an employer consider purchasing these services for an employee who is terminated without cause. This kind of service is not recommended for all terminated employees.

6. Additional termination pay and benefit continuation

In this scenario, the employer will almost always be required to provide the employee with more termination pay than the statutory minimums.  The amount of additional termination pay will depend on, among other things, the employee’s age, position, length of service and the employer’s assessment of the employee’s re-employment prospects. Depending on whether the employer is offering the employee a lump sum payment or salary continuance, the employer may also offer benefit continuation beyond the minimum statutory notice period.

 7. A release

Generally, an employer does not want to pay an employee more than the minimum statutory termination pay unless the employee agrees not to commence any legal proceedings in connection with the employee’s employment and/or the termination of his or her employment. An employer therefore generally requires the employee to sign a document which states that the employee will release these legal claims as a condition of receiving the additional termination pay.

Additional terms may be included in a severance package depending on the unique circumstances of a particular termination.

If you require assistance preparing an employee severance package for a terminated employee, please contact our Managing Partner, Doug MacLeod by phone at 416 317-9894 or by email at [email protected]cleodlawfirm.ca

Panorama Theme by Themocracy