Canada: Styles Overturned: Alberta Court Of Appeal Clarifies Treatment Of Incentive Payments Upon Termination

In Styles v. Alberta Investment Management Corporation (Styles), a recently released decision that has been eagerly awaited by employers and employees alike, the Alberta Court of Appeal (Court) clarified the law with respect to how long-term incentive plans (LTIP) should be treated when an employee is terminated.

In doing so, the Court overturned a trial-level decision that would have greatly expanded the entitlements of employees upon termination of employment and provided welcome clarity on an employee's post-termination right to long-term incentive payments.

BACKGROUND

This dispute concerned a claim brought by an employee, David Styles, against his former employer, the Alberta Investment Management Corporation (AIMCo), following the without cause termination of his employment. Notably, the claim was not related to the amount of notice or pay in lieu thereof to which Mr. Styles was entitled; such amounts were clearly governed by the employment contract. Rather, the dispute turned on whether Mr. Styles was entitled to the payment of bonuses under AIMCo's LTIP following the termination of his employment.

The LTIP in this case was a relatively standard form document, which provided that:

  • Grants were allocated to participating employees on a yearly basis, but no rights vested and no bonus became payable until a four-year period had expired
  • Participating employees had to be actively employed on the vesting date to be eligible for a bonus

By extension, a participating employee whose employment lasted less than four years and was no longer actively employed by AIMCo on the vesting date would not be entitled to or eligible for a bonus under the LTIP.

Mr. Styles had been employed by AIMCo for less than four years at the time his employment was terminated. He demanded the value of his unpaid LTIP amounts from AIMCo on termination, but AIMCo refused, citing the terms of the LTIP. Mr. Styles brought an action for such amounts.

Trial Decision

Mr. Styles succeeded in his argument at trial. The trial judge found that the bonuses under the LTIP were payable to him. This decision was based on the Supreme Court of Canada's decision in Bhasin v. Hrynew, wherein a "general organizing principle" of honesty in the performance of contract was recognized (for more information on Bhasin v. Hrynew please see our December 2015 Blakes Bulletin: Termination of Contracts — Good Faith Implications). The trial judge expanded such principle to include a "common law duty of reasonable exercise of discretionary contractual powers."

On this basis, notwithstanding the LTIP's plain wording and the fact that there was no evidence of bad faith at play in the decision to terminate Mr. Styles' employment, the trial judge found that AIMCo's actions were an unfair exercise of discretion that created circumstances under which Mr. Styles could not receive his LTIP grants.

Consequently, the trial judge awarded Mr. Styles C$444,205 in damages for lost bonuses under the LTIP. Interestingly, such damages were calculated based on the entire four year vesting period for the bonuses under the LTIP and not by reference to the reasonable notice period in this case (as is standard in such cases). AIMCo appealed the decision.

DECISION ON APPEAL

The Alberta Court of Appeal overturned the trial judge's decision. In doing so, it rejected the trial judge's interpretation of the LTIP and dismissed her proposed "common law duty of reasonable exercise of discretionary contractual powers."

The central force behind the Court's decision was the interpretation of the LTIP itself. The plain meaning of the contract was clear: it provided that an employee had no entitlement to a bonus under the LTIP unless he or she was actively employed on the vesting date (e.g., after the four year period had expired). Accordingly, unless Mr. Styles could show some reason why the plain wording of such contract should not govern, he would not be entitled to any bonuses under the LTIP. No such reasons existed here as:

  • The decision to refuse payment of bonuses under the LTIP was not truly discretionary
  • A decision to terminate an employee without cause is not properly characterized as an exercise of discretion and an employer need not provide a reasonable basis for such a termination

The Court went on to emphatically reject the trial judge's proposed "common law duty of reasonable exercise of discretionary contractual powers." It explained that such principle was unsupported by established authority and in fact contrary to established principles of contract law. Parties are free to act in their own self-interest in the commercial context. It is not for courts to examine contracts to determine whether the bargain at issue makes sense or is fair — that is for the parties to decide.

In this case, Mr. Styles understood what he bargained for when he agreed to employment with AIMCo. Bonuses under the LTIP did not vest for four years. If he wanted access to bonuses under the LTIP in the event that his employment was terminated without cause before the four year period expired, it was — as the Court put it — "incumbent on him to negotiate such a provision."

TAKEAWAYS

In many ways, this decision is a relief for Alberta employers. The trial decision created some uncertainty as to what an employee with unvested rights under an incentive plan would be entitled to in the event his or her employment was terminated without cause. Equally, there was a question as to whether employers should develop appropriate contingencies into their practices as a result.

The Court's decision in Styles (and the extensive reasoning that accompanied it) has — barring an appeal to the Supreme Court of Canada — put such questions to rest in Alberta. The plain language of incentive plans will govern the accessibility of such entitlements when employees are terminated without cause. If an employee's rights under an incentive plan have not vested at the time his or her employment is terminated and there is no language to the contrary, he or she will not be entitled to such amounts on termination. The reasoning behind such a principle is clear: parties should get what they contract for, even in the employment context.

Additionally, the Court's emphasis that courts do not have a mandate to examine the content of contracts to determine whether a bargain makes sense places helpful boundaries on the arguments that employees can raise post-termination. In simple terms, as long as employment agreements and associated incentive plans meet statutory minimums and are not otherwise discriminatory, an employee will likely be required to adhere to the bargain he or she agreed to.

Based on such reasoning, it is prudent for employers to invest time at the outset of an employment relationship to ensure that all of an employee's entitlements are clearly dealt with in the event of termination. As Styles demonstrates, clear language will govern and employers with ambiguous incentive plans run the risk that such plans will be interpreted contrary to their interests moving forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
23 Nov 2018, Other, Toronto, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

28 Nov 2018, Speaking Engagement, Toronto, Canada

Arbitration has a number of advantages and some disadvantages for the resolution of domestic and international commercial disputes.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions