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24 Months Severance + Discretionary Bonus Awarded
Schaufert v Calgary Co-Operative Association Limited, 2021 ABQB 579 is a new Alberta case wherein the Honourable Justice J.T. Eamon awarded a stunning 24 month notice period (severance), bonuses that would have vested in the notice period, and a bonus that would have been granted and vested during the notice period.
The case is important for several reasons. First, a 24 month severance award is relatively rare, so it should be noted. Second, this is one of the first Alberta decisions to consider the significance of Matthews v Ocean Nutrition Canada Ltd., 2020 SCC 26 on things like bonus awards and payments during the reasonable notice period.
There were 3 plaintiffs in this action. Each of them had worked for the plaintiff for a long period of time, being 35.5 years, 31 years and 29 years respectively, and were each in their early 50’s. They each held upper management positions of Operations Director, Director (Internal Audit) and Managing Director, (Liquor) respectively. Each of them had their employment terminated on a without cause basis.
The employer had a policy that the maximum reasonable notice severance any employee could receive was 18 months. The evidence was that this was not referred to in the written contracts of employment of these employees, nor had they ever signed anything indicating they agreed to it. They were, however, aware of the policy.
They were each also eligible for annual Short Term Incentive Bonuses (STIP), and separate annual Long Term Incentive Plan bonuses (LTIP) grants which vested over 3 years.
The terms of the 2016 STIP grants provided that “a terminated employee is not entitled to participate in or receive payment for any STIP Award in respect of any Performance Period that commences after the date that the employee’s employment is terminated.” The terms of the 2017 STIP grants provided that “If a Participant […] is terminated without cause […] during a Performance Period, the Participant will cease to be a Participant under the Plan and will not be entitled to payment of an STIP award in respect of any Performance Period that is underway.” The terms of the 2018 STIP grants were similar, but required that the participant be “actively employed” at the end of the Performance Period to receive an award.
The 2017 LTIP grants provided that “a terminated employee is not entitled to participate in or receive payment for any LTIP award in respect of any performance Period that commences after the date that the employee’s employment is terminated”. The 2017-2019 LTIP grants provided that “If a Participant […] is terminated without cause […] during a Performance Period, the Participant will cease to be a Participant under the Plan and will not be entitled to payment of an LTIP Award in respect of any Performance Period that is underway.”
Analysis / Conclusion
On the issue of reasonable notice severance, the court found that:
- The employer’s policy which purported to limit severance to 18 months maximum was not part of any of the plaintiffs contract of employment, despite that they were aware of the policy, because the employer would have needed unambiguous assent by these employees to incorporate something limiting common law rights to severance into their contracts;
- The employer also had not established that 18 months’ notice was a “reasonable or notorious practice” in the retail grocery industry or within the defendant;
- Having regard to the age, long service and upper management jobs of these plaintiffs, they were each entitled to 24 months’ reasonable notice.
On the issue of whether the plaintiffs were entitled to STIP and LTIP bonuses that would have been granted and/or would have vested in the reasonable notice period, the court noted that the test was as follows:
 For bonus and benefit plans, the applicable test is set out in Matthews at para 55: “Would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period? If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right?”
Regarding whether these bonuses formed part of the reasonable notice damages, the court found that some of them would have, and that it could not actually decide on others, as follows:
- The bonuses were technically discretionary, although there was no evidence they had not been awarded in the past;
- The bonuses were an integral part of the compensation of these plaintiffs;
- The bonus plans did not unambiguously take away the plaintiffs’ common law rights to these bonuses:
- The plaintiffs would have received a 2018 STIP grant and payment, because they were eligible and it would have paid out during their notice period. Regarding the 2019 STIP, the court gave direction that the parties were to determine the end of the performance period, and if that fell within the notice period then it was payable to the plaintiffs;
- The plaintiffs would have received LTIP grants had they remained employed during the notice period. Whether they would have received the 2017-2019 LTIP award depended on whether the end of the performance period fell within the notice period, so the court gave direction to the parties to determine that and act accordingly.
This is an interesting case, for the reasons I indicated at the outset. First, it is an important affirmation of the law that an employer cannot simply create a policy manual and assume that everything in there binds its employees. The employees have to agree. Second, given the fact that these employees worked at the employer for many years and were in senior management positions, a high notice period was obvious; however, 24 months is the “rough upper limit”, so the case is special in that regard. Finally, the dust has not yet settled on the impact of the Matthews case, but this case spends some time applying the test from that case to a series of bonus plans, which makes it an instructive precedent in Alberta.
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A published copy Schaufert v Calgary Co-Op, 2021 ABQB 579 is available at this link: https://www.canlii.org/en/ab/abqb/doc/2021/2021abqb579/2021abqb579.html?autocompleteStr=2021%20ABQB%20579&autocompletePos=1