United States: Ontario, Canada: What Is An Employee's Entitlement To Incentive Plan Compensation During The Notice Period?

In Manastersky v. Royal Bank of Canada, 2019 ONCA 609, the Ontario Court of Appeal ("OCA") considered the important question of whether a terminated employee is entitled to be awarded damages in lieu of a lost opportunity to earn incentive plan compensation during his or her reasonable notice period.1 The OCA's decision indicates that the answer lies in the contractual language of the incentive plan, which must be strictly examined.


The employee was recruited in 2001 by the RBC Dominion Securities ("RBCDS") to work as a director of a Mezzanine Fund that invested in established companies with a track record of positive cash flow. During his employment, the employee participated in incentive compensation plans, and from 2004 until his termination in 2014, he participated in a specific incentive compensation plan. The employee was allocated points in that specific incentive compensation plan representing his share in the aggregate profits and losses for two separate portfolios, Fund 1 and Fund 2. At the time of the employee's termination, these points were fully vested.

In mid-2013, the employee was notified that RBCDS was considering putting an end to its continued reinvestment in the Mezzanine Fund. In February 2014, he was informed that his employment would be terminated without cause effective that month, and he was offered his base salary, bonus payments and benefit entitlements for 13 months. In June 2014, the employer took steps to terminate the incentive compensation plan that the employee participated in. As the Mezzanine Fund was wound down in 2015 and 2016, the employee was paid what he was entitled to in respect of his participation in Fund 1 and Fund 2, the only funds that existed at the time of his termination.

The employee refused the termination offer and sued the employer for wrongful dismissal.

Decision of the Trial Judge

As noted above, the primary issue in this case was whether the employee was entitled to be awarded damages for the lost opportunity to earn incentive plan compensation during the notice period.

The trial judge concluded that the employee should have received 18 months' notice of termination. He held that by cancelling the funds and thereby depriving the employee to earn income from them, the employer constructively dismissed the employee. The trial judge decided that the employee was entitled to an amount beyond the profits he had received from Fund 1 and Fund 2. He concluded that the employee's wrongful dismissal damages should include incentive plan compensation in the amount of $953,392 for a lost opportunity to earn entitlements under the incentive compensation plan during the 18 month reasonable notice period. This sum was calculated based on the incentive plan compensation the employee earned historically.

Decision of the OCA

The OCA overturned the trial judge's decision and held that the employee was not entitled to incentive plan compensation during the 18 month notice period. The court concluded that the trial judge made a palpable, overriding and reversible error when he failed to conduct an examination of the terms of the relevant incentive compensation plan. The OCA set aside the trial judge's award to the employee.

Applicable Legal Principles

The OCA confirmed and reiterated several key legal principles set out in prior precedent:

  • When an employer terminates an employee without cause, the employer is liable to the employee for damages for breach of contract, measured by the loss of wages or salary and other benefits that would have been earned over the notice period;
  • The terminated employee is entitled to a common law claim for damages for the loss of pension benefits the employee would have earned had the employer not breached the contract of employment, and for the loss of bonuses or incentive payments that are an integral part of the employee's compensation; and
  • When considering a claim by a terminated employee for damages with respect to benefits payable under such plans during the period of reasonable notice, the court should ask the following questions:

a. Does the employee have a common law right to damages for breach of contract?

b. Does the plan contain a contractual term that alters or removes a common law right and was it brought to the attention of the employee?

Application to the Facts of the Case

The OCA's approach focused on the contractual language of the relevant incentive compensation plan. The court examined its terms in the context of the contract as a whole, an exercise that it noted the trial judge failed to conduct.

In carefully reviewing the incentive compensation plan, the OCA focused primarily on Article 9.3 and Article 4.4. The court noted that Article 9.3 clearly disclosed that one risk of the employee's contract of employment was that the Management Committee could terminate the plan effective as of the end of any Investment Period with respect to future Investment Periods. It noted also that Article 4.4 provided that the status of a participant with respect to any Investment Period "shall not give any Participant the express or implied right . . . to any Points for any future Investment Period." [Emphasis added]

Based on this analysis, the OCA concluded that the employee's entitlement to earn payments under the incentive compensation plan was tied to the existence of the funds created for different "Investment Periods".2 It held that the employee was not entitled to any earnings under the plan during the period of reasonable notice beyond those connected to Funds 1 and 2. Funds 1 and 2 were the only funds that existed during the last decade of his employment and the period of reasonable notice.

In the process of arriving at its decision, the OCA made the following observation:

. . . by awarding Mr. Manastersky damages for earnings beyond those relating to Funds 1 and 2, the trial judge effectively was holding that RBCDS was obligated to establish some notional Fund 3 that would exist at least until Mr. Manastersky's period of reasonable notice came to an end.

The court noted that the incentive compensation plan was the product of an agreement between a sophisticated employer and a group of sophisticated employees. Its terms, including Article 9.3, were fully disclosed to the employee at the time of his offer of employment and the employee signed the plan and amendments to the plan.

Finally, the OCA concluded that because the employer exercised a fully disclosed right to terminate the plan, its termination did not amount to a constructive dismissal.

Bottom Line for Employers

The OCA's decision in Manastersky v. Royal Bank of Canada provides guidance to employers that seek to preclude terminated employees from continuing to earn incentive plan compensation during a reasonable notice period. It suggests that to achieve this end, employers should ensure that all documentation pertaining to the employee's position contains clear and unambiguous terms that eliminate such a right. Employers are therefore encouraged to pay close attention to the language in all of their employment documentation, including the language in their incentive compensation plans, and to clarify what entitlements an employee may have upon termination of employment. While an employer cannot contract out of employment standards legislation, it can take effective steps to limit its common law liabilities.


1 A second ground of appeal, which is not discussed here, concerned the choice of foreign exchange methodology to be applied to determine payments to participants in the incentive compensation plan.

2 At paragraph 13 of its decision, the OCA explains the concept of "Investment Periods" as follows: Under the incentive compensation plan that the employee participated in, investments made by the bank and managed by RBCDS in the Mezzanine Fund were placed into portfolios established for defined "Investment Periods." The first portfolio, Fund 1, covered an Initial Investment Period. Investments made in the subsequent Investment Period were known as Fund 2. When the Fund 2 Investment Period ended, a Fund 3 Investment Period was contemplated.

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.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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.


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.


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