Canada: You Get What You Bargain For: Alberta Court Of Appeal Returns Certainty To Employers In Respect Of Discretionary Incentive Plans

In its first decision of 2017, the Alberta Court of Appeal has handed employers a significant victory in holding that there is “no common law duty of reasonable exercise of discretionary contractual powers”. This decision alleviates the significant uncertainty that was created by the trial decision in Styles v Alberta Investment Management Corporation (discussed in our earlier blog), namely that the courts might actively rewrite employment contracts based on vague principles of “fairness” and “reasonableness” and that employers are required to give reasonable justifications for terminating their employees.

Background and Trial Decision

In 2015, the trial court ruled that Mr. Styles was owed more than $400,000 under a long term incentive plan (LTIP) after he was terminated without cause and denied payment of several LTIP bonus grants. Mr. Styles was employed for approximately three years. In each of these years he was awarded a sizable discretionary LTIP grant. Under the terms of the LTIP, once accepted by an employee, a grant would be invested for the employee’s benefit before vesting four years later.

The trial court seized on the wording of the LTIP, which provided that the grants “may be forfeited” if the employee was not actively employed on the vesting date and interpreted the LTIP as providing the employer with a discretion that had to be exercised “fairly and reasonably”. This principle was imported as an extension of the duty to honestly perform contractual obligations established by the Supreme Court of Canada in Bhasin v Hrynew (also discussed in an earlier blog). The trial judge concluded that the employer’s discretion to forfeit the grants which had not vested was contrary to the employee’s reasonable expectations, notwithstanding the clear wording of the LTIP.

The trial court also found that the employer’s decision to terminate the employee without cause was a “discretion” that had to be exercised reasonably, in particular by providing a reasonable explanation to the employee for a denial of a “legitimate contractual interest” such as the grants.

Court of Appeal Decision

In reversing the trial decision, the Court of Appeal emphasized that the unambiguous language of the LTIP “left no doubt that any period of ‘reasonable notice’ required in lieu of notice of termination did not qualify as ‘active employment’”, and that it was clear that Mr. Styles was not actively employed on the date that the bonuses might have vested. The Court of Appeal concluded that Mr. Styles was not entitled to receive any bonus and that the employer’s refusal to pay a bonus in any case was not properly interpreted to be discretionary under the LTIP.

The Court of Appeal also rejected the trial court’s characterization of a decision to terminate an employee without cause as discretionary. It reiterated an employer’s fundamental right to determine its own workforce by terminating an employee without cause, stating that “no explanation need be given”. The Court added that an employee is not entitled to compensation as if the contract were not terminated even if the employer does not provide a reasonable basis for the employee’s termination without cause. It concluded, “[n]o employment, no vesting, no bonus”. 

Notably, the Court of Appeal commented on Bhasin, stating that it “does not establish any general principle of ‘reasonable exercise of discretion’ in contractual performance. This radical extension of the law is unsupported by authority, and contrary to the principles of the law of contract”. The Court of Appeal further held that Bhasin should not be used to rewrite contracts or award damages to contractual parties that the court regards as “fair” despite such damages being clearly unmerited in accordance with the contract. Mr. Styles bargained for bonuses that would vest only after four years of continuous employment. He failed to earn the bonuses under the LTIP as they never vested. It follows that he has no entitlement to the bonuses, in part or at all.

Discretion in Ontario

In contrast to Styles, a recent Ontario case indicates that the courts may review an employer’s reasonable exercise of discretion in contractual performance. In the recent case of Fraser v Canerector Inc, the Ontario Divisional Court upheld a motion judge’s summary judgment decision, finding in favour of an employer who denied an employee the right to an annual bonus during the employee’s reasonable notice period following the termination of his employment.

The offer of employment allowed the plaintiff to participate in the defendant’s “discretionary” executive bonus program and, in each of the three years leading up to the termination of his employment, the plaintiff had received annual bonuses of $50,000, $75,000, and $175,000. Once terminated, the plaintiff argued that he was entitled to the bonus during the notice period.

Contrary to other cases on this issue (discussed in detail here), the motion judge found that the plaintiff was not entitled to a bonus during the notice period, “both because the bonus plan in question implicitly required participants to be employees at the time the assessment process is undertaken after year end and because the plan itself was fundamentally discretionary and subjective”. The motion judge added that “the court is in no position to sit as a court of appeal weighing allegedly unfair bonus calculations … based on allegations that a particular decision” is unfair. The motion judge concluded that:

I have not been pointed to any cases where the courts have found an entitlement to [a] bonus arising from a discretionary plan such as this without any formula to turn to.  I decline to invent such an entitlement when doing so would, in my view, run plainly contrary to the reasonable expectations of the parties in this case.

On appeal, the Court considered it problematic that the motion judge implied a term that the employee had to be actively employed after year end in order to be considered for bonuses, as no such requirement was clearly communicated to the employee in writing at any time and there was no evidence to support a finding that he had to be present at the time of the assessment process to receive a bonus. However, this did not affect the appeal for two reasons: first, there was no evidence that the bonus had been denied because the employee was not present at the time of assessment; and, second, the motion judge’s decision that the employee was not entitled to the bonus was reached on the basis of both the fact the employee was not present during the assessment and because of the discretionary nature of the plan.

Although the employee acknowledged that the bonus plan was discretionary, he argued that the employer had an obligation to exercise its discretion “in a fair and reasonable manner” using objective criteria. While the Court found that by accepting the offer of employment, the employee “freely agreed” that the bonus was subject to a discretionary determination, which “decision prevails for better and for worse, in good times and in bad”, it nonetheless went on to consider whether the employer had exercised its discretion reasonably. The Court held that the reasonable exercise of discretion by the employer did not support awarding a bonus given that there was no evidence that the divisions the employee managed were profitable or that his efforts had had a positive impact on the employer. 

Guidance for Employers

The Court of Appeal’s reversal of Styles is welcome news to employers. Absent a successful appeal to the Supreme Court of Canada, it appears that no duty of reasonable exercise of discretionary contractual powers exists in Alberta and that employers may safely rely on incentive plans that contain clear and unambiguous language to deny entitlement to any unvested benefits to employees who are terminated without cause. Moreover, Alberta employers no longer need fret about giving reasons for terminating employees without cause.

Further, in light of Styles, it appears that, in Alberta, discretionary powers under contracts are powers fairly bargained for between the parties, such that the party with the discretion may exercise such power in its favour and to the other party’s detriment. In contrast, Fraser indicates that Ontario courts may undertake an examination of an employer’s reasons for exercising its discretion in a particular manner in order to ensure that such discretion is exercised reasonably. In addition, in Ontario, incentive plans must provide for benefits that extend through the statutory notice period.  In any event, employers would be wise to revisit their incentive plans, stock option plans and bonus plans and tighten up their language in order to minimize the risk that they are interpreted unfavourably by a court or arbitrator. 

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

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

In association with
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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