Canadian HR Reporter

20 www.hrreporter.com F E A T U R E S S P E C I A L R E P O R T LEGAL GUIDE COURTS 'FAIRLY CONSISTENT' WITH INCENTIVE COMPENSATION d i s p u t e s t h at c a n n o t b e resolved between an employer and employee and, consequently, proceed to trial rarely arise out of an ongoing employment relationship. In fact, all of the recent key court decisions on compensation involve claims for damages arising upon termination of employment. T h e c l a i m s t y p i c a l l y i n v o l v e entitlements under change and control or under long-term incentive, stock option or employment agreements. The employee typically claims that their severance package (meaning pay in lieu of notice) should include all elements of compensation. The employer typically relies on certain limiting language in an agreement to argue that the former employee needs to be actively employed on a defined trigger date, such as a bonus payout date, to receive the disputed compensation. A 2016 Ontario Court of Appeal decision (Paquette v. TeraGo Networks Inc.) illustrates this conflict. Trevor Paquette's employment was terminated without cause. His bonus plan stated that an employee "actively employed" on the date of the bonus payout was eligible for a bonus. On a plain and simple understanding, Paquette was not actively employed after his date of termination during the period of reasonable notice. However, the court restated the basic principle that if an employer gives pay in lieu of notice instead of having an employee work through their notice period, the employee is entitled to be put in the same financial position as if they had worked through the notice period. Employers use actual working notice less frequently than paying pay in lieu of notice and, therefore, the concept of making the employee whole arises often. The court concluded that if Paquette had worked through the notice period, he would have received a bonus. The court asked whether the bonus plan specifically removed the entitlement to and oppressive" and the employer failed to direct the employee to these terms. The court awarded damages for the value of the options scheduled to vest during the 24-month notice period. Courts' decisions on entitlement to various forms of incentive compensation have become fairly consistent. Simply stating that an employee needs to be employed, actively employed or a full- time employee on a certain date is no longer sufficient to preclude damages for loss of entitlements that would have arisen during a notice period. Employment agreements, bonus plans and incentive plans must be very clearly and carefully drafted in light of this trend in our case law. CHRR PAY compensation for the lost bonus during the notice period. As the plan did not do so, Paquette was awarded damages for the loss of his bonus. Even when an employment agreement is carefully drafted to displace certain forms of compensation during the notice period, if the written terms are onerous, lengthy and not clearly brought to the attention of the employee, a court will not necessarily enforce them. For example, the Ontario Court of Appeal in 2020 refused to enforce a stock award agreement that included effective language to end an employee's status as a participant when they were no longer actively providing services because the court found the terms "harsh ANNELI LEGAULT Partner Dentons Canada in Toronto

• Cover