Canadian Employment Law Today

Ask an Expert Have a question for our experts? Email Jeffrey.R.Smith@thomsonreuters.com Canadian HR Reporter, a Thomson Reuters business 2016 2 | August 17, 2016 with Meghan McCreary MACPHERSON LESLIE & TYERMAN LLP REGINA Answer: e Supreme Court of Canada has recognized that a duty of good faith applies to contractual dealings (see the 2014 deci- sion in Bhasin v. Hrynew). e parties to contractual negotiations must act in good faith throughout the process, and this deal- ing has recently impacted the way Canadian Courts view bonus entitlements after an employee has been terminated. Many employers have bonus agreements which state that an employee must be em- ployed at the time the bonus is awarded to be eligible for the bonus (even if the bonus is based on the previous year's results). If an employee resigns or is dismissed before the bonus is paid out, then the employer takes the position that no bonus is owing. Whether such a bonus policy will be bind- ing after termination is largely an unsettled area of the law. Courts in varying jurisdic- tions have interpreted the situation diff er- ently. Two recent cases from Ontario and Alberta show the diff erent perspectives a court may take. In Paquette v. TeraGo Networks Inc., the Ontario Superior Court determined that a 14 year employee who was terminated without cause was not eligible for a bonus even though the bonus became payable during the reason- able notice period. In this case, the employee was 49 years old when he was dismissed from the company. e employer's bonus policy stated that employees were eligible for bonus- es if they were "actively employed by TeraGo on the date of the bonus payout." e court outlined the case law on the issue of bonuses after termination and determined an employ- ee is entitled to a bonus that becomes payable during the reasonable notice period if the contract provisions are silent on the bonus eligibility or if the provisions are ambiguous. However, because the TeraGo bonus policy was not ambiguous — it clearly stated that an employee must be employed at the time the bonus was paid to be eligible for the bonus — the dismissed employee was not eligible for it, even though it became payable during his reasonable notice period. e Alberta Court of Queen's Bench dem- onstrated a diff erent perspective in Styles v. Alberta Investment Management Corp. In this case, the court focused on the interpretation of the agreement surrounding the company's long-term incentive plan, which vested grants to employees four years after they were pro- vided. An employee had to be employed at the time the grants vested to receive them. Notably in this case there were also annual incentive plans that provided bonuses on a yearly basis. e court determined that the dismissed employee was eligible for the pay- out of his long-term incentive plan as it would have vested during his period of reasonable notice. e court did note that the wording of the various provisions surrounding the policy over the years were not as clear as they should have been. It relied on the principles in Bhasin to correct the power imbalance between the two parties and determined that it was unfair for the employer to take away the four-year vested grant from the plaintiff when it would have been properly payable during the notice period. ese two cases demonstrate disparate interpretations of what constitutes good faith dealing under a contract. However, while a duty of good faith exists and honest contractual dealings are required, this does not take away the will of the parties to craft a deal that is more benefi cial to them than the other party. What these two cases suggest is that the wording in bonus agreements is very important to determining whether they are required to be paid out if they become payable during the reasonable notice period. Employers should strive for clear and unam- biguous provisions in bonus agreements if an employee will only be eligible for a bonus if he is actively working at the time of the payout. If the provision is ambiguous or per- ceived as unfair, a court will generally award the bonus to the dismissed employee if it be- comes payable during the notice period. Bonus entitlement after dismissal Question: Can an employer stipulate that employees are only entitled to bonuses if they're employed at the time the bonus is awarded, even if the bonus is based on the results of the previous year before the employee was dismissed? Zero tolerance policies Question: We've heard conflicting opinions on whether zero tolerance policies for certain types of misconduct are enforceable. Can such a policy truly stand up? Answer: Zero tolerance policies can stand up if they are applied consistently, fairly and in a non-arbitrary, non-discriminatory manner. A zero tolerance policy means that a breach of the policy will attract some form of discipline. It does not mean that every breach of the "zero tolerance" policy will justify an employee's dismissal. Zero tolerance policies must comply with the rules of progressive discipline and, in unionized workplaces, with the "KVP" prin- ciples. e rules developed in the 1965 case of KVP Co. Ltd. essentially state that while employers in unionized workplaces have the right to unilaterally impose rules, those rules must be: communicated to employees; reasonable; administered in a fair and con- sistent way; and compliant with the collec- tive agreement. On the basis of KVP, an em- ployer cannot rely simply on its own rule or "zero tolerance policy" to justify a particular disciplinary penalty. Rather, discipline im- posed under a zero tolerance policy must be just and reasonable in the circumstances, and in accordance with any applicable col- lective agreement. A zero tolerance policy that tries to impose termination on any em- ployee who breaks a rule will not be enforce- able if the discipline would not otherwise be warranted, but for the policy. Arbitrators have consistently found that they are not bound by zero tolerance poli- cies that ignore the progressive discipline model. Where arbitrators determine that a zero tolerance policy is off -side, they will disregard the policy and impose the correct level of discipline based on all the circum- stances. For example, in a recent Ontario ar- bitration decision, an arbitrator agreed that it was appropriate for the employer to have a zero tolerance policy respecting alcohol on the worksite, but that a 36-hour suspension was too harsh a penalty for an employee who had a bottle of vodka in his car, when the em- ployee's daughter had borrowed the car and left the bottle unbeknownst to the employee (U.S. Steel - Hamilton and USW, Local 1005 (Chapman), Re). In sum, the use of zero tolerance policies can be benefi cial for employers to defend a disciplinary response as appropriate when discipline procedures are undertaken in a consistent and fair manner. While a zero tolerance policy does not give the employer the right to terminate employees for viola- tions of the policy in every case, as long as the discipline resulting from a breach of a zero tolerance workplace policy is reasonable in the circumstances, it is likely to be upheld at arbitration. ZERO on page 9 »

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