The Supreme Court of Canada, in a recent unanimous decision in Matthews v. Ocean Nutrition Canada Limited, restored an award exceeding $1 million to a constructively dismissed employee.
David Matthews, an experienced chemist, worked for Ocean Nutrition Canada for 14 years. As a senior manager, he was part of the employer’s Long Term Incentive Plan (LTIP).
The LTIP rewarded employees for their previous contributions and incentivized them to continue contributing to the company’s success.
Under the LTIP, Mr. Matthews would receive a portion of the proceeds of the sale of the company, if it was sold while he was employed with the company. Payments were based on a formula in the plan.
In 2007 the company hired a new Chief Operating Officer.
Over the next four years, the new COO began a campaign to marginalize Mr. Matthews. He reduced Mr. Matthews’ staff and responsibilities.
The COO went behind his back and ignored his requests to discuss his role. He was repeatedly dishonest toward him about his attempts to minimize Mr. Matthews’ role. He lied to Mr. Matthews about his prospects at the company.
In June, 2011, Mr. Matthews resigned.
In August, 2011, he took a position with a new company.
In July, 2012, 13 months after Mr. Matthews left, Ocean Nutrition was sold for $540 million.
Pursuant to the LTIP, had he remained with Ocean Nutrition, Mr. Matthews’ portion of the proceeds would have been about $1.1 million.
Since Mr. Matthews was not actively employed, Ocean Nutrition denied him the LTIP payment.
Mr. Matthews sued the employer for wrongful dismissal. He claimed constructive dismissal, and sought damages for breach of his employment contract and the loss of the LTIP payment.
He alleged that the employer breached its duty toward him to act in good faith.
Regrettably, he did not pursue damages for breach of good faith, or damages for mental distress.
Trial Decision
The trial judge found Mr. Matthews was constructively dismissed. Mr. Matthews was entitled to damages equal to the amount he would have earned had he remained employed over a 15 month notice period. That includes salary, benefits and the LTIP payment.
The trial judge found that had he not been constructively dismissed, Mr. Matthews would have been employed at the time of sale.
He awarded damages equivalent to what Mr. Matthews would have received under the LTIP.
Court of Appeal Decision
A majority of the Court of Appeal upheld that Mr. Matthews was constructively dismissed. It upheld his 15 month notice period. However, it allowed the employer’s appeal in part, holding that the trial judge erred in awarding damages pursuant to the LTIP when the plan expressly disentitled him from any payment. It set aside the award of $1.085 million.
Supreme Court of Canada Decision
The Supreme Court of Canada allowed Mr. Matthews’ appeal. It restored the trial judgment and awarded him his costs at all levels of court.
Two aspects of the Court’s decision are particularly interesting: the approach to damages for loss of benefits; and the court’s comments on employers’ good faith obligations toward employees.
Notice Period Test
- The Court clarified that assessing damages for benefits lost during the reasonable notice period involves two steps:
- Assessing the employee’s common law rights; and
Determining whether any wording “unambiguously” alters the employee’s common law rights.
The common law requires employers to provide reasonable notice of dismissal. Not doing so leads to an award of damages in lieu of notice, whether or not good faith was present.
Clauses attempting to remove an employee’s rights will be strictly interpreted against the employer.
This test applies to all forms of compensation: bonuses, pensions, commissions and other benefits.
Breach of Good faith
The Court summarized the “settled law” on employers’ duty of good faith:
…this is an occasion to re-affirm two important principles…. First, … the duty of honest performance — which … means simply that parties “must not lie [to] or otherwise knowingly mislead” their counterparty “about matters directly linked to the performance of the contract” — is applicable to employment contracts…. Second, given the four-year period of alleged dishonesty leading up to Mr. Matthews’ dismissal, I would also reiterate that when an employee alleges a breach of the duty to exercise good faith in the manner of dismissal … this means courts are able to examine a period of conduct that is not confined to the exact moment of termination…
Breaching the duty of good faith is a separate contractual breach.
One example is lying to an employee about the reasons for dismissal.
Compensation for the notice period does not speak to the duty of good faith. Damages for breach of good faith do.
Punitive damages could also be available in some circumstances.
Whether or not the employer provides adequate reasonable notice, employees may sue for a breach of the duty of good faith for additional damages over and above the notice period.
This decision also clarifies that in constructive dismissal cases, the employer’s conduct may be scrutinized over an extended period of time.
However, ongoing callous and insensitive conduct by employers is not limited to cases of constructive dismissal.
Outright dismissals may also be preceded by similar conduct which causes damage to the employee.
It would make sense to scrutinize an employer’s course of conduct in all dismissal cases, not merely cases of constructive dismissal.
The Court stopped short of finding that a broader duty of good faith exists throughout the entire employment contract, as it was not necessary to do so in this particular case.
However, certain statements in the decision may foreshadow that may be the direction of future decisions.
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About Susan Kootnekoff:
Susan Kootnekoff is the founder of Inspire Law, an Okanagan based-law practice. She has been practicing law since 1994, with brief stints away to begin raising children.
Susan has experience in many areas of law, but is most drawn to areas in which she can make a positive difference in people’s lives, including employment law.
She has been a member of the Law Society of Alberta since 1994 and a member of the Law Society of British Columbia since 2015. Susan grew up in Saskatchewan. Her parents were both entrepreneurs, and her father was also a union leader who worked tirelessly to improve the lives of workers. Before moving to B.C., Susan practiced law in both Calgary and Fort McMurray, Alta.
Living and practicing law in Fort McMurray made a lasting impression on Susan. It was in this isolated and unique community that her interest in employment law, and Canada’s oil sands industry, took hold. In 2013,
Susan moved to the Okanagan with her family, where she currently resides.
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