$1.1m payout warns employers to watch their contract language

Things at the fish oil factory had taken a dark turn for David Matthews.

For 14 years, Matthews was a key senior management employee at Ocean Nutrition Canada in Nova Scotia. He was an elite omega-3 chemist, one of only a few such scientists internationally. In 2007, everything changed. Ocean began “a four-year ‘campaign,’ characterized by lies and dishonesty, to push Mr. Matthews out of operations.”

For a time, he endured, knowing that if he held on until the business was sold (which he believed was impending) he would be entitled to receive a bonus payment of around $1 million under Ocean’s Long Term Incentive Plan (LTIP).

In June 2011, it all became too much for Matthews, and he left for other employment. Thirteen months later, Ocean was sold for $540 million. Matthews brought a wrongful dismissal claim against Ocean, alleging that he had been constructively dismissed and was entitled to his LTIP payment resulting from the sale of the company.

The dispute went all the way to the Supreme Court of Canada, which on October 9, 2020, determined that Matthews was entitled to a LTIP payment in the amount of $1.1 million, plus damages for a reasonable notice period of 15 months, less amounts he earned in mitigation at his new employment.

Matthews vs. Ocean Nutrition Canada Ltd., 2020 SCC 26, is a reminder to all employers to closely review any performance, bonus or incentive plan, to ensure those plans very clearly address all circumstances in which an employee will not be entitled to a payment. Many employers will be surprised to learn that, following Matthews, commonly used language (e.g. “you must be actively employed”) is no longer sufficient.

The Ocean LTIP, incorporated into Matthews’ terms of employment, stated that it was expressly “of no force and effect” if he ceased to be an employee, regardless of whether he “resign[ed] or is terminated, with or without cause.”

With this backdrop, the court applied a two-step framework to determine Matthews’ entitlement to the LTIP payment. First, but for the unlawful termination, would he have received the LTIP? Second, are there any express terms that unambiguously take away that right?

The court answered the first question in the affirmative: Matthews would have been entitled to the LTIP payment, but for the constructive dismissal.

More interestingly, the court answered the second in the negative. Because the termination was “unlawful” (i.e. without notice), Matthews was not merely dismissed “without cause” (captured in the LTIP) but was wrongfully dismissed “without cause and without notice” (not captured in the LTIP).

If that seems like a particularly strict interpretation against Ocean, that’s because it was. The court noted that the LTIP (as is typical) was not negotiated or bargained by the parties, but was instead imposed by Ocean on Matthews. Any terms that purported to limit Ocean’s liability were therefore interpreted very strictly against Ocean. The court did not go so far as to propose limiting language that would be effective, but did say that on these facts, even if the LTIP plan referred to “unlawful termination,” that would not be clear and unambiguous enough to displace Matthews’ common-law entitlement to the LTIP payment.

But, if he had an employment contract that allowed Ocean to terminate him without cause and on payment of damages in lieu of notice, and if Ocean had exercised that option rather than constructively dismissed him, the termination would not have been “unlawful,” and the limiting language in the LTIP would likely have been sufficient for Ocean to avoid an obligation to pay LTIP.

Whether a terminated employee is entitled to a bonus, performance or incentive payment arising during the period of reasonable notice still depends on the terms of the applicable plan or policy. However, Matthews makes it clear that employers who seek to rely on language limiting entitlement will be held to an extremely high standard and commonly used language is no longer enough. •

Mike Hamata is a partner at Roper Greyell and practises in all areas of employment and labour law.

While every effort has been made to ensure accuracy in this article, you are urged to seek specific advice on matters of concern and not to rely solely on what is contained herein. The article is for general information purposes only and does not constitute legal advice.