ARTICLE
26 March 2024

Ontario, Canada Court Awards Retired VP $1.8 Million In Damages For Unpaid Vacation, Deferred Bonus And Unvested Stock Options

Court also found that because the employee notified his employer of his retirement, he was not constructively dismissed when his accounts were transferred.
Canada Employment and HR
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  • Ontario Superior Court of Justice held an employee was entitled to $1.8 million in damages for unpaid vacation, bonuses, and stock options, because the terms of the relevant policies were not clearly communicated to him in his employment agreement or by any other means.
  • Court also found that because the employee notified his employer of his retirement, he was not constructively dismissed when his accounts were transferred.

In Boyer v. Callidus, 2024 ONSC 20, the Ontario Superior Court of Justice found that an employee was entitled to $1.8 million in damages for unpaid vacation, bonuses, and stock options, because the terms of the relevant policies were not clearly communicated to him in his employment agreement or by any other means.

Background

The employer was a lender to distressed businesses in Canada and the United States. The employee was its Vice President of Underwriting and Portfolio Management from 2009 until 2016. His employment agreement was oral.

In addition to receiving a base salary, the employee participated in the employer's deferred bonus program and stock option plan. The employee was entitled annually to four weeks' vacation.

Under the bonus program, the employer withheld a portion of its employees' bonuses, and would distribute 50% of the withheld amounts in each of the two following years. The deferred portion accrued interest at the quarterly rate of 3%.

It was the employer's usual practice to allow an employee's entitlement to stock options to vest upon the employee's departure.

In 2015, the employee notified the employer that he would be retiring at the end of 2016. The employee claimed that after providing this notice he was treated in an abusive manner, and his work environment was poisoned. At the end of the summer of 2016, the employee's accounts were transferred to others. The employee then asked to take 24 weeks of accrued vacation but the employer denied his request.

In September 2016, the employee provided a letter to his employer stating that he had no choice but to retire early because his work environment had become increasingly toxic, and he was being treated in an abusive manner. The letter also noted that the employer did not honour the employee's entitlement to accrued vacation pay or compensate him on termination for his deferred bonus and unvested options.

Employee's position

By way of summary judgment, the employee claimed:

  • Constructive dismissal: He was constructively dismissed because his job responsibilities were removed by the end of July 2016, and because of the employer's unjustified criticism and vague and unfounded allegations against him, which created a hostile and embarrassing work environment. He was entitled to damages for wrongful dismissal based on the claimed period of reasonable notice of 15 months.
  • Vacation: He was entitled to payment for accumulated and unused vacation equivalent to 24 weeks' salary (30 weeks earned to the end of 2016 less 6 weeks taken). The employer allowed him to roll his unused vacation entitlement forward to subsequent years if he did not use it in any given year.
  • Deferred bonus: He was entitled to damages for outstanding deferred bonus amounts. The employer withheld 40% of the employee's 2014 bonus and paid him half of the withheld amount in 2015, but not the other half. The employer withheld 60% of his 2015 bonus and did not pay him any of the withheld amount. As well, the employer did not pay the 3% quarterly interest on the withheld amounts.

At the employee's performance review in December 2015, he was informed that his bonus would be the maximum amount it could be for the year because he earned it. He was never shown a "Deferred Bonus Policy," which the employer claimed he was aware of, that required any eligible person to be employed by "the Corporation" to receive their principal amount of deferred bonus or any interest thereon. The bonus awarded to him was in anticipation that he would be leaving the following year and no terms limiting its applicability were brought to his attention.

  • Stock options: There was no written employment contract affecting the employee's entitlement to the vesting of stock options in accordance with the employer's usual practice of allowing vesting of all options upon departure. Furthermore, the employee had been told verbally that on his retirement, his unvested stock options would vest. Accordingly, the employee's stock options should not be expropriated on his departure.

As the employer was no longer a public company and had gone private, the stock options awarded to the employee could no longer be vested or exercised. Accordingly, the employee should receive damages in money for the value of the options if exercised and the shares sold on a certain date.

Employer's position

  • Constructive dismissal: The employee was not constructively dismissed. He always intended to retire for personal reasons at the end of 2016 and voluntarily resigned approximately three months early.
  • Vacation: The employer did not permit its employees to carry over unused vacation from year to year without express written approval, which was not requested by or given to the employee. The employee received compensation for his unused vacation days.
  • Deferred bonus: The employee was aware of the employer's policy for deferred compensation which contained the requirement that any person eligible for such deferred compensation, "... must be employed by the Corporation to receive his or her principal amount of Deferred Bonus or any interest thereon."
  • Stock options: The employer never agreed to special terms for the employee's stock options. His vested options held in September 2016 were "out of the money" and any other options were terminated before they vested, in accordance with the employer's stock option policy.

Decision

The court made the following findings:

Constructive dismissal

The employee failed to prove that the employer committed an act or engaged in conduct that amounted to constructive dismissal. Given that the employee had notified the employer of his retirement, a reasonable person would not have felt that the essential terms of his employment contract were being substantially changed when his accounts were transferred. Furthermore, the abusive conduct referenced by the employee to substantiate his constructive dismissal claim was not particularized. When the employee left the employer, he retired. Accordingly, the employee was not entitled to damages for wrongful dismissal.

Accumulated and unused vacation

An employee's entitlement to vacation or to pay in lieu is fundamental to a contract of employment. If the employer wanted to impose a condition to the employee's employment agreement that he was required to take vacation annually and could not carry his entitlement over to subsequent years, the employer was required to ensure the employee was aware. There was no record in writing of such a policy or evidence that such a policy had been communicated to the employee.

Based on the employee's base salary of $220,000, he is entitled to damages in the amount of $93,076 for 22 weeks of unused and accumulated vacation at the time of his retirement.

Deferred bonus

No written communication was tendered into evidence to show that the employee was provided a copy of the Deferred Bonus Policy or told that he would not receive any amount for deferred compensation if he was not employed when payment became due. Moreover, there was no evidence that the employee agreed to this as a condition of his employment.

The employee's evidence that he was told at his December 2015 performance review that he would be awarded the maximum bonus was unchallenged. At the time of this performance review, it was known by the employer that the employee intended to retire at the end of 2016. Yet, the employer said nothing about the employee losing his right to receive the deferred portion of his earned bonus after his retirement.

The employee is entitled to damages for unpaid and deferred bonus amounts that were awarded to him for 2014 and 2015 ($525,000) plus 3% quarterly interest on the deferred amounts to the date of the decision.

Stock options

The document provided to the employee in connection with stock options is silent with respect to what happens to them upon an employee's retirement. The employee had an oral contract of employment. The employee's evidence that his superior confirmed that his stock options would vest upon his retirement is accepted. When this confirmation was given to the employee it became a term of his employment contract.

The employer could have sought to vary the terms and conditions of the employee's employment and obtain his agreement to a term that his stock options would expire upon his departure from the employer as an employee; however, there is no evidence that the employer did so, or that any representative of the employer, other than the employee's superior, spoke with the employee about how stock options would be treated on his retirement.

The employee is entitled to damages in the amount of $1,213,856 to compensate him for the value of his stock options, calculated by the difference in value between the grant price of each option award and the market price as of January 16, 2017, the date the employee would have exercised his vested options.

Bottom Line for Employers

Employers should take care when drafting employment agreements, policies and plans to ensure they accurately represent the terms and conditions of the employee's employment and are properly communicated to their employees.

If an employer wants to change the terms of an employee's employment, or a policy or plan that applies to them, it should be appropriately documented and confirmed.

It is recommended that employers review their employment agreements, policies, plans, and communication practices on a regular basis and update them when required.

In all cases, employers are encouraged to seek the guidance of experienced employment counsel when drafting and reviewing their employment agreements, policies, plans, and communication procedures.

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.

ARTICLE
26 March 2024

Ontario, Canada Court Awards Retired VP $1.8 Million In Damages For Unpaid Vacation, Deferred Bonus And Unvested Stock Options

Canada Employment and HR

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