When running a business and managing employees, employment contracts are incredibly important. Implicit in these contracts are the duties to provide reasonable notice on dismissal and the duty of good faith. An employer may face significant liability if they are found to be in breach of these duties. The article below describes a case of an employee who was lied to and pushed out of a company but fought back to expose his wrongful dismissal and regain what he worked so hard to achieve.
David Matthews (Matthews) was an experienced chemist who held several senior management positions in Ocean Nutrition Canada Limited (Ocean). As an executive, Matthews was part of Ocean’s long term incentive plan (LTIP), a contract which rewarded employees for their hard work of the past and in the future. Under this plan, if the company were to be sold, payments would be distributed to employees who were part of the plan. Matthews was one of these employees.
In 2007, Ocean hired a new Chief Operating Officer who did not see eye to eye with Matthews. Matthews role in the company was marginalized to a point where he was considering leaving Ocean but wanted to stay for the benefits provided under the LTIP as it was anticipated that Ocean would soon be sold. However, due to continual mistreatment, Matthews had no choice but to leave Ocean in June of 2011 and take a position with a new employer.
A little over a year after Matthews had moved on, Ocean was sold for $540 million. It was then that Matthews filed suit against Ocean claiming he was constructively dismissed and the dismissal was carried out in breach of Ocean’s duty of good faith. Matthews also claimed that due to Ocean’s dishonesty, Matthews was constructively dismissed and lost out on the opportunity to reap the rewards available under the LTIP.
The court found Ocean constructively dismissed Matthews as his employers made his work intolerable. Ocean lied to him, began restricting his duties, decreasing the number of staff underneath him, and ostracized him. When Ocean reduced Matthews responsibilities, Ocean breached their employment contract with Matthews, therefore owing him a reasonable notice period of 15 month.
Not only did the court decide Ocean owed Matthews 15 month’s pay, he was also owed his portion of the LTIP benefit. They based this on the fact that if Matthews had not been constructively dismissed, he would still have been party to the LTIP. Therefore, Matthews was entitled to damages of 15 months severance and the equivalent of what he would have received under the LTIP.
However, that was not the end of the story. The case was appealed, and there was debate over the amount of damages due to the ambiguity of the LTIP. Matthews defence was still that Ocean breached their employment contract by not providing him with reasonable notice and constructively dismissed him. Had they not, Matthews would have stayed on as an employee and been included in the LTIP when the business sold. On the other hand, Ocean focused on the fact that the LTIP bonus was not integral to Matthew’s compensation and should have been excluded from any damages owed to Matthews. The Court of Appeal agreed with the original ruling that Matthews was constructively dismissed and was entitled to 15 months severance. However, he was not entitled to the LTIP due to the ambiguous language of the document. They ruled that once Matthews left Ocean, he lost the right to recover anything under the LTIP.
This decision was again appealed to the Supreme Court of Canada (SCC). The SCC awarded Matthews his original amount due to the fact Ocean breached their contract and did not provide reasonable notice. The SCC noted that the LTIP was a “unilateral contract” as the parties did not negotiate its terms. As such, any terms that exclude or limit liability on behalf of the drafter will be strictly construed.
The SCC also addressed the duty of good faith within the employment context and reiterated that this duty does not only apply at the very end of the employment relationship and the manner of dismissal. Circumstances of a constructive dismissal will include an analysis of conduct over a series of events in time.
Employment law recognizes that parties must act in good faith. Had Ocean not breached the contract of employment, Matthews would still have been employed at Ocean and in turn received the LTIP benefit. Therefore, Matthews was awarded damages, inclusive of the LTIP benefit.
This case is another great illustration of how breaching obligations can result in costly results. When making decisions on transitioning, hiring or firing employees, it is recommended that legal advice be taken to ensure you’re on the right side of the argument. If you have any questions regarding this article or an employment issues, get in touch with Karen or any of our employment lawyers, today.