Matthews v Ocean Nutrition, 2020 SCC 26 is a Supreme Court of Canada decision that came out at the end of last year. This case involves an employee whose employment was constructively dismissed. In court he was seeking a Long Term Incentive Plan (“LTIP”) bonus that fell due during that reasonable notice period. This case is very important to the questions of (1) What is “wrongful dismissal”? (2) How do we determine whether an incentive bonus (or anything else, really) is included in wrongful dismissal damages? (3) How does the duty of good faith apply to employment cases?
This case has been read by many employer-side practitioners as a disaster which places an impossible standard on employers, and by many employee-side practitioners as a major improvement in the law. Whatever your “side”, there can be little doubt that this decision is favorable to plaintiff employees and not-so favorable to defendant employers.
There has been some commentary on this case by others already. However, given the extreme importance of this decision to my specialization, I felt the need to summarize and comment on it.
What is Wrongful Dismissal?
Prior to Matthews, and especially in Alberta, there was a dispute about what “wrongful dismissal” means, especially in Alberta. Some cases had held that “wrongful dismissal” was a “failure to provide reasonable notice” whereas others held that it was a “failure to provide reasonable notice or pay in lieu”.
This distinction appears to be splitting hairs, but it is not. The distinction has led to a vast array of cases that are difficult to reconcile.
Matthews tries to clear this all up and adopts the first approach: “The contractual breach that arises … is simply the failure to provide reasonable notice, which leads to an award of damages in lieu thereof” [underline added]. Simplistically, this means that if an employer terminates an employee effective immediately, the employer is required to pay the employee anything the employee would have earned had they remained employed during the applicable reasonable notice period.
Incentive Bonuses in the Notice Period
In this case, Matthews had been issued LTIP’s during his employment. These would have vested and been paid if a “triggering event” occurred during his employment, such as if the employer’s business was sold. His employment was terminated prior to any triggering event, and the reasonable notice period was found to be 15 months. About 13 months after termination (i.e. during his reasonable notice period), the company was sold. The LTIP plan contained language which appeared to disentitle Matthews to any LTIP payments if the payments came due when he was not actively employed at Ocean.
Ocean took position that Matthews was not actively employed at the time of the sale, so the sale did not apply as a “triggering event” to Matthews. Matthews argued that, since he would have received a payout on the sale date if he had still been employed through the notice period, he should be entitled to it. The SCC agreed with Matthews.
The SCC found that the proper approach to determining if Matthews was entitled to the LTIP was to (1) determine if he would have earned it had he remained employed during the reasonable notice period, and if so (2) ask “not whether the contract or plan is ambiguous, but whether the wording of the plan unambiguously alters or removes the [employee’s] common law rights”. The SCC went on set the bar very high for the plan language that would have been required to disentitle an incentive bonus during the notice period:
[65] … provisions of the agreement must be absolutely clear and unambiguous. So, language requiring an employee to be “full-time” or “active”, such as clause 2.03, will not suffice to remove an employee’s common law right to damages. After all, had Mr. Matthews been given proper notice, he would have been “full-time” or “actively employed” throughout the reasonable notice period […] Indeed, the trial judge and the majority of the Court of Appeal agreed that an “active employment” requirement is not sufficient to limit an employee’s damages […]
[66] Similarly, where a clause purports to remove an employee’s common law right to damages upon termination “with or without cause”, such as clause 2.03, this language will not suffice. Here, Mr. Matthews suffered an unlawful termination since he was constructively dismissed without notice. As this Court held in Bauer v. Bank of Montreal, […], exclusion clauses “must clearly cover the exact circumstances which have arisen”. So, in Mr. Matthews’ case, the trial judge properly recognized that “[t]ermination without cause does not imply termination without notice” […] Yet, it bears repeating that, for the purpose of calculating wrongful dismissal damages, the employment contract is not treated as “terminated” until after the reasonable notice period expires. So, even if the clause had expressly referred to an unlawful termination, in my view, this too would not unambiguously alter the employee’s common law entitlement. [underline added]
Scope of Duty of Good Faith in Employment
Matthews provides much-needed clarification on this issue in employment law, especially in Alberta.
First, a little context is required.
In 2014, the SCC in Bhasin v Hrynew, 2014 SCC 71 found that there was a duty of honest performance in contract law, which it said means the parties “must not lie [to] or otherwise knowingly mislead” the other party “about matters directly linked to the performance of contracts”.
In 2017 the Alberta Court of Appeal in Styles v Alberta Investment Management Corp, 2017 ABCA 1, found that if the duty of honest performance of contracts described in Bhasin applied in employment law, it only applied at discreet moments such as the terminating event itself.
Matthews makes it clear that that the duty of honest performance is applicable to employment contracts, and can even apply during the course of employment in a constructive dismissal case or if it relates to the “manner of dismissal”. This is very significant, because it opens up further avenues for employees to allege breach of that duty of honest performance and to potentially sue for aggravated and punitive damages as well. The SCC noted:
[81] … it was certainly within the trial judge’s prerogative to tie the dishonesty that occurred over the four-year period to the “manner of dismissal”. Due to the circumstances in Wallace and Keays, “in the manner of dismissal” was originally conceptualized as the moment of dismissal, suggesting to some degree that good faith must exist only at the very end of the employment relationship. Yet, circumstances of constructive dismissal show that this reading sometimes needs to be extended. Following Potter, an employee’s constructive dismissal may be better understood as the consequence of conduct over a series of events in time, and not just a tipping point. On this reading, Potter extends the notion of “in the manner of dismissal” to encompass circumstances in which termination stems from an employee’s decision to leave their job brought about, as here, by a series of events that predate the actual moment of the parting of ways between employer and employee […] Indeed, there is no coherent reason why the measure of misconduct cannot be understood retrospectively in cases of wrongful dismissal “so long as it is ‘a component of the manner of dismissal’”
Damages for Breach of Duty of Good Faith
As indicated earlier, the SCC noted that the duty of good faith applies in employment cases, and is not confined to the end of the employment relationship in a constructive dismissal case or where it is a “component of the manner of dismissal”. The SCC then stated that it was declining “to decide whether a broader duty exists during the life of the employment contact…”, but also made the following statement about the direction the law could potentially move on this:
[85] […] Not all mistreatment by an employer will result in a constructive dismissal — some employees, for financial or other reasons, might choose not to leave their job. It might be that, as argued by various parties in this appeal, a duty of good faith will one day bind the employer based on a mutual obligation of loyalty in a non-fiduciary sense during the life of the employment contract, owed reciprocally by both the employer and employee. I recognize, however, that whether the law should recognize this is a matter of fair debate. [underline added]
The implications of this are huge. It could mean that if an employer gives a dishonest performance review, resulting in an unusually small bonus, that a subsequently dismissed employee could claim for the bonus that would have resulted from an honest review, even if it was not actually constructive dismissal. This is just one example of what could be many possibilities. It will be interesting to watch this unfold as this caselaw develops.
The Matthews v Ocean Nutrition, 2020 SCC 26 decision can be found at the following link on CanLii: https://www.canlii.org/en/ca/scc/doc/2020/2020scc26/2020scc26.html?autocompleteStr=matthews%20v%20ocean&autocompletePos=1
