Canadian HR Reporter

24 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 F O C U S O N : E M P L O Y E E T E R M I N AT I O N S CLEAR, UNAMBIGUOUS LANGUAGE NEEDED TO LIMIT BONUS ENTITLEMENTS DURING REASONABLE NOTICE a recent decision awarding an employee more than $1 million for a bonus payout during his reasonable notice period, the Supreme Court of Canada has provided guidance to HR professionals and employers with respect to how to effectively limit employee entitlements to bonus or incentive payments during a reasonable notice period. When an employer terminates an employee without cause, the employee is entitled to reasonable notice of termination. In addition to the amount of minimum notice set out in applicable employment standards legislation, an employee is entitled to damages under common law for an employer's failure to provide reasonable notice of termination — unless that entitlement is limited by way of contract. Common law damages may include bonus payments that the employee would have otherwise received had they remained employed during the notice period. Ocean Nutrition decision In recent years, courts have grappled with the issue of limiting bonus and other incentive payments that may arise during a reasonable notice period after employment is terminated. The Supreme Court of Canada weighed in on this issue in its recent decision David Matthews v. Ocean Nutrition Canada Limited. The court affirmed the established framework that courts should first inquire whether the former employee would have been entitled to the bonus or benefit as part of their compensation during the proper notice period and then inquire whether the written terms of the employment contract or bonus plan unambiguously take away or limit the common law entitlement. Matthews, while employed as a senior executive at Ocean Nutrition, was entitled to a share of the proceeds if the company sold. This was part of the incentive plan agreement included in his employment contract. In assessing the circumstances of the cessation of his employment, the courts found that he was constructively dismissed and entitled to 15 months of reasonable notice. During that period of time, the company had been sold, which would have triggered Matthews' bonus entitlement had he remained employed. One of the questions to be answered by the court was whether the language used to limit Matthews entitlement to the bonus on the sale of the company that occurred during the reasonable notice period was enforceable. The Supreme Court of Canada held that it was not. The bonus plan contained language that the bonus on the sale of the company would have no force or effect if Matthews "ceases to be an employee" and, further, that any value under the plan would not be included as part of any "severance calculation." In unanimous reasons written by Justice Nicholas Kasirer, the Supreme Court of Canada held that this language was not sufficient to limit the employee's entitlement to a payout that he would have received had he been employed during his reasonable notice period. What language is enough to limit entitlements? Requiring that an employee be "full- time" or "actively employed" is not enough. Similarly, language that purports to remove an employee's common law right to damages upon termination "with or without cause" will not suffice. The language must go one step further and clearly cover the exact circumstances that have arisen, and it must clearly and unambiguously limit or remove an employee's entitlements to damages during the notice period. If an employer wishes to terminate an employee "without notice," for example, language limiting their common law entitlements must clearly indicate that the employee is not eligible for such entitlements following termination if the employee was terminated without notice. A key takeaway from this decision is that it will be important for HR professionals to review and update the language contained in employment agreements as well as bonus and incentive plans. Employers should ensure that these documents are carefully drafted with unambiguous exclusionary clauses to ensure that employees are not entitled to unintended benefits following termination. CHRR JANA LINNER Partner MLT Aikins in Regina IN

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