Canadian HR Reporter

www.hrreporter.com 19 F O C U S O N : C O M P E N S AT I O N & B E N E F I T S HOW WILL THE OCEAN NUTRITION DECISION APPLY IN QUEBEC? Supreme Court of Canada's decision Matthews v. Ocean Nutrition Canada Ltd. in October was written by former Quebec Court of Appeal Justice Nicholas Kasirer. However, its applicability to Quebec remains uncertain, as the core common law concepts at issue are at odds with the province's civil law. In Ocean Nutrition, David Matthews was deemed to have been constructively dismissed and awarded a reasonable notice period of 15 months. The Supreme Court awarded him the amount that would have accrued during his reasonable notice period as a result of the sale of the company. The Supreme Court shifted the analysis away from strict contractual interpretation when determining what employees are owed upon termination without cause. The focus should not be on "whether the terms of the LTIP [long-term incentive plan] were "plain and unambiguous, said the court, but rather on the damages owed to an employee who has failed to receive reasonable notice: " The issue is not whether Mr. Matthews is entitled to the LTIP in itself, but rather what damages he is THE entitled to and whether he was entitled to compensation for bonuses he would have earned had Ocean not breached the employment contract." When examining an employee's entitlement to long-term incentive plan awards, Quebec courts have closely examined the language of the plan and engaged in an analysis of whether the incentives are integral to the employee's compensation, finding in some cases that, where the language of the plans is not abusive, the exclusions contemplated by the plans are valid. These decisions may now be called into question by Ocean Nutrition. Quebec courts have distinguished short-term incentive plans from long- term ones on the basis that LTIPs are intended to compensate the employee for remaining at the company. Where the employee is terminated, Quebec courts have reasoned that the purpose of LTIPs would be undermined if damages to compensate for their loss were awarded following a termination without cause. While Quebec case law has been far from unanimous on employees' entitlement to LTIP awards that become payable in the period following a termination without cause, this approach will likely be called into question after Ocean Nutrition. The common and civil law notions of reasonable notice diverge with respect to the status of employment contracts during the notice period, which may impact the application in Quebec of the first branch of the Ocean Nutrition test: But for the termination, would the employee have been entitled to the bonus during the reasonable notice period? While the Supreme Court found that the employment relationship "effectively 'remains alive' for the purposes of assessing the employee's damages," this is not the legal basis for determination of damages in Quebec, where employers can immediately terminate an employment contract by paying a reasonable indemnity in lieu of notice pursuant to the Civil Code of Quebec. While Quebec case law remains undecided about the moment an employment contract truly ends, the question is whether the Ocean Nutrition analysis, authored by a Quebec justice, will be adopted. For wrongful dismissal complaints filed pursuant to the Act respecting labour standards, the administrative labour tribunal does not grapple with the question of when the employment contract is considered terminated. If the complaint is maintained, the employee is made whole with respect to salary, benefits and other damages for the period between the wrongful termination and the judgment rendered. Quebec courts will also need to reconcile the civil law with the second branch of the Ocean Nutrition test: Does the wording of the plan unambiguously alter or remove the employee's common law rights? According to the Civil Code of Quebec, employees cannot renounce in advance to an indemnity where insufficient notice of termination is given or the manner of termination is abusive. The Quebec Court of Appeal has interpreted this article to mean that employees in Quebec are not bound by a contractual severance or notice clause and that the courts may determine the reasonableness of same following termination. Ocean Nutrition creates a very high standard for excluding LTIPs from reasonable notice awards; namely, that the "provisions of the agreement must be absolutely clear and unambiguous." Language requiring an employee to be "full-time" or "active" does not meet the standard. Similarly, limiting the right to damages upon termination, "with or without cause," would not include a situation of termination without notice. "Exclusion clauses 'must clearly cover the exact circumstances which have arisen'. So, in Mr. Matthews' case, the trial judge properly recognized that 'termination without cause does not imply termination without notice'… So, even if the clause had expressly referred to an unlawful termination, in my view, this too would not unambiguously alter the employee's common law entitlement," said Kasirer. In Quebec, there is the additional consideration of the enforceability of clauses deemed external to the employment contract, which arguably includes language contained in bonus plans, STIPs or LTIPs. Pursuant to the Civil Code of Quebec, where an external clause was not negotiated and was unilaterally imposed by the employer, it may be considered a contract of adhesion and the employee may be able to challenge the clause's enforceability by demonstrating that it is excessive, unreasonable or detrimental to the employee. While Ocean Nutrition appears to have decided the matter of entitlement to long-term incentives after termination, the incongruity between core common and civil employment law principles will likely lead to further debate in Quebec. During this period of uncertainty, careful drafting is even more important than ever and Quebec employers should consider reviewing the language in existing STIP, LTIP and similar plans to ensure they meet the standard for enforceability. CHRR GARY ROSEN Partner Miller Thomson in Montreal LISEN BASSETT Associate Miller Thomson in Montreal

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