Canadian HR Reporter

CANADIAN HR REPORTER February 6, 2017 12 NEWS TIRED OF BEING OUT OF THE LOOP IN THE FAST-MOVING INDUSTRIAL RELATIONS FIELD? Canadian Labour Reporter is a weekly newsletter that is designed to provide labour professionals, lawyers and the industrial relations industry with valuable information and strategies on how to assess, monitor and approach labour collective bargaining agreements. To order your subscription call 1.800.387.5164 | 416.609.3800 www.labour-reporter.com/subscribe Subscribe today for only $595 Order No. 20260-17 bit of fear in employers, worried they may have to relook at their long-term incentive plans, said Birch Miller, a partner at Blakes in Calgary. "We have always been working under the assumption that we've been able to say that active em- ployment is a condition on which these will be paid out, and a lot of long-term incentive plans work that way." e contract involved had very clear language "and, in effect, the trial decision found a way to go around that clear language, rely- ing on a good faith principle when exercising discretion that was in- consistent with the contract," said Carl Cunningham, a partner at Bennett Jones in Toronto. "e court of appeal decision provides employers with some greater comfort that if they do prepare well-drafted plan docu- ments that express their rebut to presumption of common law, that they will be enforceable." It's a topic that's of great inter- est to a number of employers, he said, "particularly those that have a compensation structure where a significant and even ma- jority of the portion of annual compensation is tied to incentive compensation." Background David Styles became an employee at the Alberta Investment Man- agement Corporation (AIMCo) in June 2010, with compensa- tion that included a base salary of $175,000 and a long-term incen- tive plan (LTIP) that provided a yearly grant to be paid out after four years of service. Styles was dismissed without cause in June 2013, with three months' pay, and he was not given the LTIP bonus. So he sued the company for the value of the grants. In her 2015 decision, trial judge Debra Yungwirth said AIMCo "failed to exercise its contractual discretionary powers reasonably in dismissing (Styles), while at the same time refusing to pay (him) any of his earned, awarded and approved LTIP grants." ere is a common law duty, she said, that discretionary con- tractual powers granted under a contract must not be exercised in a manner that is unreasonable, unfair, capricious or arbitrary. Yungwirth frequently cited the 2014 Supreme Court of Canada decision Bhasin v. Hrynew, which recognized that good faith con- tractual performance is a general organizing principle of common law, and parties to a contract must act honestly in the performance of their contractual obligations. But in its Jan. 4, 2017, decision, the court of appeal disagreed with the trial judge, saying the decision "discloses errors of principle and errors of law." e AIMCo contract, said the appeal court, "left no doubt as to whether the participant had to be actively employed on the vesting date. It also left no doubt that any period of 'reasonable notice' re- quired in lieu of notice of termina- tion did not qualify as 'active em- ployment.' is is not a case where the court has to imply terms in an agreement, fill in gaps or interpret vague provisions." Bhasin implications e court emphasized Yungwirth took Bhasin one step too far when she talked about the common law duty of reasonable exercise and discretionary, contractual powers, said de Lobe Lederman, an associ- ate at Blakes in Calgary. "e court of appeal basically said that's not really what Bhasin was talking about, and the trial judge's position there really isn't supported by established law and previous decisions." e Bhasin principle also re- lates to the performance of a con- tract, not to the negotiation or terms of a contract, said the ap- peal court. "Secondly, Bhasin does not make it dishonest, in bad faith nor arbitrary to require that the other party perform the contract in ac- cordance with its terms." e court of appeal basically said Bhasin doesn't say anything about negotiating the contract, said Owens. "Parties are free to put in what- ever terms they want to put into a contract, provided they're not lying, essentially, but they're entitled to contract as they are. Courts' jobs are not to go in and rewrite contracts for them, even if the deal is bad — absence some extreme circumstances." Challenging wording e trial judge also focused on the fact AIMCo's LTIP agreement said a grant "may be forfeited," but it was unreasonable to suggest these three words "override all the other wording in the plan and that participation agreement that emphatically state that bonuses are forfeited when employment terminates," said the appeal court. "ere was no right to receive a bonus unless the respondent was actively employed on the vest- ing date. ere was no discretion involved." e plan was clear, said Owens. "But the trial judge hung on that one sentence that said they 'may be forfeited' and took that sentence to interpret that there's some type of discretion that the employer had in deciding whether or not to pay the bonus." Termination issues e trial judge also talked about the "discretion" to terminate a re- spondent without cause, but that's inaccurate, said the appeal court. "It is a further error to suggest that such a decision can be re- viewed by the court for reason- ableness. This approach treats termination without cause as a breach of contract. An employer can terminate the contract of em- ployment on reasonable notice — no explanation need be given." When an employer terminates without cause, the employee is entitled to reasonable notice or compensation in lieu of notice, said Cunningham. "ere's not a requirement to provide reasons, and the decision doesn't have to be reasonable; it obviously can't be contrary to public policy — for example, the human rights code or a reprisal that's protected under legisla- tion — but that doesn't mean the employer has to have a reasonable basis for its decision," he said. "So the application of the good faith and discretion in terms of exercising that decision to termi- nate, the appeal court disagreed with the trial judge's application of Bhasin in that regard." In the absence of a reason, the trial judge went on to infer AIM- Co was taking the bonus plan into account when Styles was termi- nated, "when in fact that wasn't the case," said Owens. And while Styles claimed the contract was "unconscionable," the appeal court disagreed, say- ing it potentially entitled him to earn very significant bonuses, both annually and in the longer term: "e (LTIP) was designed for senior executives who would be capable of understanding its provisions." e court made a point to em- phasize that Styles was a sophis- ticated party who knew what he was getting into, or should have known, when he signed the LTIP, said Lederman. "If he wanted to have been en- titled to these two bonuses under the long-term investment plan before they vested, he should have negotiated those terms at the time the employment began." However, the appeal court did admit the LTIP used unfortunate wording, such as using "grants" for the base numbers or book- keeping entries placed into the bonus formula, or talking about "forfeiting" the grants. "Since the grants are never paid, and are merely formula entries, it is anomalous to say that they are 'forfeited,'" said the appeal court. An employee will have a sympa- thetic argument if a number looks like compensation that's already earned, said Cunningham. "If the payment is truly an in- centive to motivate the employee for future positive contributions, then that should be stated. If it's not, there's a greater likelihood that the inference can be drawn it's rewarding for services or work already performed." e employer was using words that had certain legal connota- tions, said Owens. "For example, most people when they hear the word 'grant,' they think something has been given to someone… so you've earned that and you have an entitlement to that, but what actually happened in this case under the plan was there was a very complex formula that used sales figures in a certain year to establish a number, and that number would then go to another big formula in those four years to determine what the bonus would be paid. So it wasn't a grant in the sense that the person had earned anything, it was sort of a placehold- er number, for lack of better word." It's important to be very explicit in the agreement, she said. "You want to be protected as best you can, and you also want the employee to understand what they agreed to as best you can because it is recognized that sometimes there's an unequal bar- gaining relationship between em- ployer and employee, so it benefits everyone if you're all on the same page." Meaning of 'grants,' 'forfeited' at issue ALBERTA < pg. 1 "e court of appeal basically said that's not really what Bhasin was talking about, and the trial judge's position wasn't really supported by established law." machismo sees men less willing to admit feelings of harassment in the workplace. In general, men do not want to appear weak, said Barrow. As a result, HR profession- als may need to work harder to extract information from their male colleagues as opposed to fe- males, she said. Additionally, HR may need to proactively approach male employees rather than vice- versa, and ask questions in order to address the issue in a more ef- fective way. "Human resources profession- als may need to dig a little deeper in order to get the full story from the male target," said Barrow. "A manager or representative should talk to that person, pull that person aside. I would bring the person into the HR area and have a discussion, rather than in the employee's area of work. For men, that could create a situation in which the target is feeling as if others are seeing him as being less, or weak." Company policies need to be shaped in such a way that all em- ployees understand what bullying behaviours are, which will not be tolerated, and what consequences will result, she said. "If a male target is working in a predominantly male workplace, then the message must be 'Every- one will be treated and respected equally. Bullying behaviour will not be tolerated, whether it's employee-to-employee, boss-to- employee or employee-to-boss,'" said Barrow. "It starts at the top. So if the leaders of the organization are bullying the employees, then they're not going to be able to rectify the situation because they are demonstrating the behaviour that they're telling the employees not to be involved in." Ontario rules While Ontario law now ensures companies are implementing an- ti-bullying policies, organizations need to work harder to remove this behaviour from the work- place altogether, said Jacqueline Power, assistant professor with expertise in workplace bullying and violence at the Odette School of Business at the University of Windsor, Ont. Recruits should be screened for personality characteristics linked to bullying such as psychopa- thy, Machiavellianism and social dominance orientation (SDO), she said. "It's actually quite easy," said Power, noting much can be achieved through simple person- ality questionnaires. HR may need to 'dig deeper' BULLYING < pg. 9

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