Canada: Love Hurts – SCC Refuses Leave To Appeal In Love v. Acuity Investment Management Inc.

Last Updated: October 19 2011
Article by David Elenbaas

Love hurts.

That's how Paul Love is feeling, now that the Supreme Court of Canada has refused his application for leave to appeal the Ontario Court of Appeal's decision in his wrongful dismissal action (Love v. Acuity Investment Management Inc., 2011 ONCA 130). Love hurts despite the fact that the Court of Appeal took the unusual step of increasing Love's period of reasonable notice in his action against his former employer.

Love sued Acuity, an investment management firm, when he was dismissed without cause. He had been a senior vice president and, at the time of his dismissal, was 50 years old with approximately two and a half years of service. He also held two percent equity in the company with his annual compensation including salary, commissions, profit sharing and the value of his shareholdings totalling approximately $633,000. At trial, the judge awarded Love damages based on a five month notice period. Love appealed that finding and the Court of Appeal substituted a nine month notice period. The Court's decision was based primarily on its view that the trial judge over-emphasized one factor (in this case length of service) to the apparent de-emphasis of others (the character of employment including level of position and compensation, and the availability of comparable employment). So Love looked like a winner at the Court of Appeal. Right?

Not so fast. There were also the "small" matters of Acuity's cross-appeal and the issue of costs. The cross-appeal challenged the trial judge's finding that Love was entitled to the value of incremental capital appreciating on his shares ($219,000) plus the value of incremental profit sharing and dividends ($273,000), to the end of the notice period. Acuity argued that the trigger date for Love's obligation to sell his shares back to the company and their valuation occurred when his employment ended, and not at the end of the notice period. The relevant provision in the Investment Agreement between Love and Acuity read:

"Subject to paragraph 4 hereof, if at any time:

Love's employment is terminated by Acuity without cause; or
Love should cease to be an employee of Acuity by reason of death or disability,

...Love agrees that Acuity shall have the purchase the shares for a purchase price, determined at the date that Love ceases to be an employee of Acuity... ."

In reviewing the trial judge's finding on that issue, the Court of Appeal began by distinguishing the concept of notice of termination from payment in lieu of notice. The termination of employment without working notice is a breach of the implied contractual right to reasonable notice. Any payment by the employer in lieu of notice is not in compliance with the contractual right, but rather is intended to compensate for the breach. Contrary to the finding of the trial judge, the Court of Appeal agreed with Acuity and found that, based on the language of the Investment Agreement, the trigger date for Acuity's right to repurchase the shares and for valuing those shares was the date that Love's employment was terminated without cause, and not at the end of the notice period. In making this determination, without expressly stating so the Court of Appeal was clearly distinguishing the Investment Agreement in Love from the share option agreement in a previous Court of Appeal decision: Veer v. Dover Corp. (Canada) Ltd. (1999), 2 BLR (3d) 234. That is, there is a distinction to be drawn between "ceases to be an employee" (Love) and "terminate as of the effective date of such termination" i.e. upon lawful termination (Veer).

Equally as important to the case, Acuity made formal offers to settle the case well before trial, in amounts that exceeded Love's ultimate award of damages. After adjustment of the costs by the Court of Appeal, Love remained on the hook for the majority of the costs. At the end of the day Love's damages were reduced from $528,000 to $131,434, while the costs awarded to Acuity were $269,568. It was a costly lawsuit for Love.

What Love means for employers

The Court of Appeal's decision, which the Supreme Court has chosen not to review, makes it clear that an employer must be very careful in crafting language that deals with an employee's entitlements around shares and share options on termination of employment. Moreover, an employer is well advised not to place too much weight on any single factor, such as length of employment, when assessing the notice entitlement of an employee it is about to dismiss without cause.

The Supreme Court having refused his application for leave to appeal, Love is left without a further remedy. In the words of the great Leonard Cohen: there ain't no cure, ain't no cure, ain't no cure, for Love.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2011 McMillan LLP

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