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Executive Employment Law

At Goldstein Law, our employment lawyers focus on the niche area of executive employment law. In addition to providing advice and counsel with respect to contracts and employment offers, wrongful dismissal, constructive dismissal and changes to employment, termination, our executive employment lawyer routinely assists executives and other senior employees with issues that are unique to the senior executive or employee, including: duties of departing executives, fiduciary duties, executive and other complex compensation models and plans, bonus issues, deferred compensation, changes of control, mergers and acquisitions, non- compete and non-solicitation agreements.

Bonuses During the Notice Period for Executives

A particular issue that often arises in the context of executive employment law is how to deal with bonus claims in wrongful dismissal actions. Where a terminated executive employee claims damages for lost opportunity to earn bonuses during their reasonable notice periods, an employer will often rely on language in their bonus policy that attempts to deprive the employee of their bonus if they were not “actively employed.”

The Court in Paquette v. TeraGO Networks established a two-part test to govern bonus claims:

  1. Was the bonus an integral part of the compensation package; and
  2. If so, is there language in the bonus plan that restricts the common law entitlement to damages in lieu of a bonus over the notice period?

An employee will typically have a right to claim damages in relation to a bonus that is an “integral part” of their compensation, even if the bonus is described as discretionary. Whether the bonus plan ousts the employees entitlement to bonus during the notice period is based on whether the wording unambiguously alters or removes the employee’s common law rights.

What Bonus Clause Will Oust the Common Law?

In Paquette, the Court held that a clause that required an employee to be “actively employed” by the employer on the date of the bonus payout was insufficient to displace the common law entitlements to damages for a lost bonus. Further, in this case, the Court validated the use of a three-year average total compensation to determine the value of subsequent bonuses payable during the notice period.

There have been a number of updates with respect to deferred bonuses (see Bain v. UBS Securities Canada Inc.), principles applicable to stock options and restricted share units (see O’Reilly v. IMAX Corporation) that our executive employment lawyers understand and reference to support your entitlement to full compensation during the reasonable notice period. Should you have any questions about your common law entitlements to bonus or deferred compensation on the termination of your employment, it is advisable to contact a law firm that specializes in executive employment law.

Terminating Senior Executive Employees

As we have discussed in various posts, a termination from employment in Ontario can occur in one of two ways; (i) a termination without cause; and (ii) a termination for just cause. As we have noted here, the threshold to establish a termination for cause is very high and the test for establishing just cause was discussed as length by the Supreme Court of Canada in McKinley v. BC Tel 2001 SCC. As noted in McKinley, a contextual interpretation to the employees alleged misconduct is considered in determining whether the employer had just cause for termination, rather that considering the sole instance of alleged misconduct in a vacuum. At paragraph 33:

The courts do not consider an act of misconduct, in and of itself, to be grounds for dismissal without notice, unless it is so grievous that it gives rise to the inference that the employee intends no longer to be bound by the contract of service. There is no definition which sets out, precisely, what conduct, or  misconduct, justifies dismissal without notice, and rightly so.  Each case must be determined on its own facts. . . .

Thus, according to this reasoning, an employee’s misconduct does not inherently justify dismissal without notice unless it is “so grievous” that it intimates the employee’s abandonment of the intention to remain part of the employment relationship. In drawing this conclusion, the Nova Scotia Court of Appeal relied on the following passage in The Law of Dismissal in Canada (2nd ed. 1992), at p. 124:

What constitutes just cause in a specific situation is particularly difficult to enumerate because it depends not only on the category and possible consequences of the misconduct, but also on both the nature of the employment and the status of the employee . . . .

The existence of misconduct sufficient to justify cause cannot be looked at in isolation. Whether misconduct constitutes just cause has to be analyzed in the circumstances of each case.  Misconduct must be more serious in order to justify the termination of a more senior, longer‑service employee who has made contributions to the company.

The last point is the most relevant for the purposes of this discussion. Longer service more senior employees who have a demonstrable history of strong performance and dedication with a company will have more latitude when it comes to alleged misconduct. In other words, it is harder to establish just cause for terminating the employment of a senior executive that a short-term entry-level employee.

Where a senior executive is terminated from their employment without cause, the typical factors as enunciated originally in Bardal v. Globe & Mail Ltd., 1960 CanLII 294 (ON SC) continue to apply; including (i) the age of terminated employee, with employees of more advanced age typically entitled to more severance pay given the challenges for older workers to obtain new jobs; (ii) the years of service with the company, with longer service employees being entitled to more severance on average; (iii) the specialization of the job and the corresponding time it is anticipated for the employee to obtain a new job, with more specialized employees likely to have more difficulty obtain comparable employment, thereby entitling them to enhanced notice periods; among other factors.

For senior executives with long lengths of service, they can typically be entitled to severance pay at the high-end of the range awarded by Courts in Ontario. Other considerations including the payment of variable incentive pay, commissions accrued but unpaid to the termination date, continuation of RRSP or pension plan contribution matching, employee benefits coverage continuation, contributions to legal fees, provisions of letters of reference, and outplacement counselling to assist employees with obtaining a new job. These are all requests made in the ordinary course while negotiating severance packages for terminated employees.