CITATION: Fraser v. Canerector Inc., 2016 ONSC 6071

DIVISIONAL COURT FILE NO.: 432/15 DATE: 20161004

ONTARIO SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

H. McLean, C. Horkins, L. Pattillo JJ.

BETWEEN:

STUART FRASER

Plaintiff/Appellant

– and –

CANERECTOR INC.

Defendant/Respondent

Greg McGinnis, for the Plaintiff/ Appellant

Mark Fryer, for the Defendant/ Respondent

HEARD at Toronto: June 14, 2016

C. hORKINS J.

introduction

1The appellant Stuart Fraser was employed by the respondent Canerector Inc. from August 9, 2011 until June 10, 2014, when his employment was terminated.

2The appellant brought a motion for summary judgment seeking damages arising from his termination.

3On April 7, 2015, Dunphy J. (the motion judge) awarded the appellant damages in lieu of reasonable notice, but denied his claim for a bonus payment. The motion judge determined that if the appellant had been entitled to a bonus it would have been $37,187.50.

4The appellant appeals the motion judge’s dismissal of his bonus claim and the quantification of the bonus. The appellant also seeks leave to appeal the costs order.

Overview of the motion judge’s decision

5The outcome of the summary judgment motion hinged on two narrow factual issues. First, was the appellant induced to leave his secure employment in circumstances that would warrant a lengthier notice period? Second, was the appellant entitled to include in his damages an amount for a bonus?

6The motion judge found that the respondent did not induce the appellant to leave his former employment. In the circumstances, the motion judge found that 4.5 months was a reasonable notice period. The motion judge used this notice period to determine damages. The appellant does not appeal this part of the decision.

7Turning to the bonus, the motion judge found that the appellant had no contractual entitlement to a bonus and dismissed the appellant’s bonus claim. A review of this part of the reasons follows.

8The appellant accepted the respondent’s offer that provided a lower base salary and the potential for higher remuneration through the respondent’s employee bonus plan. The offer stated that “you will also be eligible to participate in our employee bonus plan”. There was nothing else that described the bonus plan.

9The respondent did not have a bonus policy and there was no formula used to calculate bonuses. As the motion judge stated, “the plan itself was fundamentally and by its nature discretionary and thus subjective.”

10While the appellant had the right to participate in the bonus plan, there was no “contractual entitlement” to an identifiable bonus amount. The amount of an employee’s bonus could vary significantly from year to year. The bonus amount did not move in a single direction and could be nil in some years.

11Each year, Cecil Hawkins, the owner of the respondent, decided what bonus, if any, would be paid to an employee. He made this decision with the input of his daughter, Amanda Hawkins. The decision was made annually, in February, after the year end and during the annual salary review. The bonus decision depended on the employee’s contribution and the results of the business that year.

12The appellant “fully appreciated that the bonuses were discretionary and followed no fixed formula”. He knew that they could vary significantly. The motion judge explained that “where, as here, the parties have both freely agreed that a portion of the remuneration of the employee will be subject to a discretionary determination of the value of contributions at year end, their decision prevails for better and for worse, in good times and in bad.”

13The appellant benefitted from this discretionary bonus plan, in comparison to the more conservative bonus program at his former employment that was capped at 50% of his base salary. In 2011, the appellant received a bonus of $50,000 for less than five months' work, when he had made no identifiable contributions to the new business. In 2012, the appellant received close to the equivalent of his old employer's bonus ceiling (approximately 50% of salary or $75,000). In 2013, the appellant received almost 100% of his salary in bonus ($175,000) after a record year for acquisitions. This was well beyond anything the appellant could have earned at his former job.

14As the motion judge stated, bonuses were “wildly variable” and the appellant had to “live with the risk inherent in such a system since he had no fixed entitlement” to a bonus.

15In late 2013, the appellant’s position at the respondent’s company changed. He moved from the acquisitions group, where he was responsible for originating prospective acquisitions and managing the process of acquiring them, to "Division Liaison". In this new role, the appellant reported to Amanda Hawkins. He was involved in the management of the businesses that he had helped to acquire in the past and was still expected to be involved in the origination and completion of acquisitions.

16In June 2014, the respondent terminated the appellant and offered to pay him three months salary and no bonus. The appellant rejected the offer and commenced this action.

17Mr. Hawkins and Ms. Hawkins found that the appellant “needed quite a bit more supervision than they had thought would be necessary for someone in his position charged with sourcing and managing completing acquisitions.” The motion judge found that this was the basis for the decision to terminate the appellant’s employment, although it did not rise to justifying a dismissal with cause.

18The appellant had been given the benefit of the doubt while he was “learning the ropes”, but Ms. Hawkins was of the view that the appellant “had not grown sufficiently into his role to meet her expectations.” Her father who had been supervising the appellant “had been more forgiving in his assessments and made allowances that [Ms. Hawkins] would not have made.”

19The motion judge found that “Ms. Hawkins' negative subjective assessments of [the appellant’s] contributions cannot simply be dismissed from consideration in examining bonus entitlement.” There was “no basis to challenge the bona fides of [Ms. Hawkins’] negative assessment of [the appellant’s] contributions at the time of her decision to terminate his employment.” At para 47, the motion judge stated:

[A]ll parties understood that the bonus process was managed by the owners including Ms. Hawkins and her negative assessment of him was bona fide, real and not the result of hindsight in litigation.

20The motion judge rejected the appellant’s position that the “bonus must be based on objective criteria objectively applied and, to make a finding of the bonus amount based upon a consideration of the bonus paid in 2013 (which was the high water mark of the plaintiff's three year bonus history).”

21The motion judge found that it was not reasonable to assume the appellant’s “2013 bonus was in any way ‘locked in’ as a baseline for future bonus allocations”. This was explained as follows in para. 46:

Prior year's bonus decisions had been driven very largely by acquisitions and the variability in his bonus history was largely explained by the number and success of deals Mr. Fraser had been instrumental in originating or closing. It was clear that his new position as "Division Liaison" continued to include responsibility for originating acquisitions and that bonus would thus continue to be, at least in part, continue to be driven by an assessment of his success in that regard. There is no suggestion on the evidence that the defendant had originated any acquisitions in the part-year he was there nor was there any evidence at all from the plaintiff regarding any other milestones of his performance. The evidence does not support the conclusion that bonus was ever payable just for showing up or not being the object of severe criticism.

22In summary, the motion judge found that the appellant was not entitled to a bonus. At para. 58, he stated as follows:

I reach this conclusion 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, lacking any formula which a court might objectively apply. For both reasons, there is no amount of bonus to which the plaintiff was contractually entitled as of June 10, 2014 when his employment was terminated or as of October 25, 2014 when his 4.5 months of reasonable notice would have expired.

23The motion judge then assessed the quantum of a bonus that would be owed to the appellant by the respondent, in the event he had erred regarding the appellant’s entitlement to the bonus. To support this process, the motion judge utilized anonymous data provided by the respondent in the form of bonus histories for five similar-level employees. He also considered the evidence of the appellant’s performance in 2014. He concluded that if appellant had been entitled to a bonus, it would be in the amount of $37,187.50.

The appellant’s position

24The appellant states that the motion judge made the following errors:

(i) The motion judge conflated entitlement to a bonus with the quantum of bonus.

(ii) The motion judge did not apply the appropriate principles of contract interpretation to the employment offer.

(iii) The motion judge did not accept that determining entitlement to a bonus required the employer to exercise its discretion in a fair and reasonable manner.

(iv) The motion judge erred when he relied on anonymous data to calculate the bonus.

standard of review

25The Supreme Court of Canada set out the standard of review applicable in appeals from judges' orders in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. On questions of law, the standard is correctness. On questions of fact, the standard is palpable and overriding error. On questions of mixed fact and law, the Court stated that there is a spectrum. Where there is an extricable legal principle, the standard of review is correctness. However, with respect to the application of the correct legal principles to the evidence, the standard is palpable and overriding error.

analysis

Conflating Entitlement with Quantum

26The appellant argues that the motion judge erred in law because he conflated entitlement to a bonus, with the quantum of bonus. It is his position that he was entitled to a bonus and the only question for the motion judge was the amount of bonus.

27The appellant states that the motion judge conflated these issues, because he failed to first ask if the bonus was an integral part of the appellant’s compensation. Instead, the appellant states that the motion judge focused on the lack of a bonus policy and a formula that would guide the court’s calculation of the bonus. The appellant argues that if a bonus is an integral part of compensation there is a contractual right to a bonus.

28For the reasons that follow, I reject this ground of appeal. The facts that the motion judge found do not support this ground of appeal.

29The motion judge considered the applicant’s position that the bonus was an integral part of his compensation. At para. 41, the appellant’s position was set out as follows:

He submits that bonus was an integral part of his employment contract and the level of bonus relative to Mr. Fraser's fixed salary speaks for itself in that regard. The plaintiff urges the court to find the bonus must be based on objective criteria objectively applied and, to make a finding of the bonus amount based upon a consideration of the bonus paid in 2013 (which was the high water mark of the plaintiff's three year bonus history).

30Further at para. 68, the motion judge noted that the appellant was urging the court to accept that the bonus plan was an integral part of his remuneration, “a factor that he seeks to elevate to the level of entitlement”. The motion judge went on to explain in para. 68 his rejection of the appellant’s position:

In this regard, the plaintiff is conflating "eligibility" with "entitlement". The plaintiff's contract stipulated that he would be "eligible" to participate in the bonus program. His entitlements under that program, however, were at all times discretionary until fixed and declared. For this reason as well, I find that he had no entitlement to any amount of bonus at the time of the termination of his employment or at the end of the notice period I have found he was entitled to.

31The facts that the motion judge accepted provided ample support for his position. The offer of employment gave the appellant the right to participate in the bonus plan. He was not contractually entitled to a bonus. The offer of employment only gave the appellant the right to participate in the bonus plan. There was no guarantee that the appellant would receive a bonus every year. The bonus plan was “by its nature discretionary and thus subjective.” Bonuses were “highly variable” and could be nil.

32On these facts, the motion judge rejected the appellant’s argument that the bonus was an integral part of the remuneration package. These were facts that the motion judge found and there was no palpable and overriding error of fact.

Principles of Contract Interpretation to the Employment Offer

33The appellant states that the respondent should not benefit from any ambiguity in the appellant’s employment offer. It is submitted that the motion judge should have applied the doctrine of contra proferentum and found that the offer provided the appellant with an entitlement to a bonus, in an amount to be determined in the employer's discretion, exercised fairly and reasonably.

34The appellant’s argument fails. There was no employment agreement other than the offer of employment. As noted, the offer that the appellant accepted gave him the right to participate in the bonus plan. It did not provide an entitlement to a bonus. The words of the offer were clear and there was no ambiguity that required interpretation.

35The appellant also states that the motion judge erred in law when he found that the bonus plan “implicitly required participants to be employees at the time the assessment process is undertaken after year end”. The motion judge found that “both parties fully expected that employees needed to be employed past year end in order to be considered.”

36The appellant agrees that an employer can restrict bonuses to those who are employed at the time of the assessment. However, such a condition must be clearly set out. Such a limiting term cannot be implied.

37The motion judge concluded at para. 58 that the appellant was not entitled to a bonus for two reasons, “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, lacking any formula which a court might objectively apply.” [Emphasis added.]

38The appellant states that there was no evidence to support the motion judge’s finding that employees had to be present at the time of the assessment process to receive a bonus. The basis for the motion judge’s finding is set out at para. 59:

The following considerations lead me to the conclusion that only employees who were still active, contributing employees after year end had any rights to be considered for bonus:

a. The plaintiff's prior employment agreement expressly conditioned eligibility upon employment at the time of declaration of the bonus and the parties specifically negotiated Mr. Fraser's starting time with the defendant in order to ensure he would be able to qualify for that bonus from his prior employer in a plan which was formula-driven - this may be relevant to the reasonable expectations of the parties as regards the requirements of the defendant's discretionary bonus program without any prescribed formula, floor or ceiling;

b. While the defendant had communicated no written bonus policy expressly excluding the eligibility of departing employees, the plaintiff was advised that his salary was reviewed annually in February and he was also aware that his contributions were reviewed and bonus amounts announced at the same time;

c. The program was described (and understood by participants) as being discretionary, employing no fixed formula and based upon the subjective assessments of contribution by the owners (Mr. Hawkins and his daughter) which were communicated confidentially along with each award. [Emphasis in original.]

39I find that the motion judge’s decision to imply this restrictive term problematic because it was not clearly communicated to the appellant in writing at any time and there was no evidence to support the finding of fact that employees had to be present at the time the assessment process to receive a bonus.

40This does not lead me to conclude that this appeal should be allowed. First, there was no evidence that the respondent denied the appellant a bonus because he was not present at the time of assessment. Second, the motion judge reached his conclusion on the basis of “both” reasons: because he was not present during the assessment and because of the discretionary nature of the plan. As I have noted, the motion judge made clear findings of fact setting out the discretionary nature of the plan. This leads to the next ground of appeal.

The Exercise of Discretion in a Fair and Reasonable Manner

41The appellant acknowledges that the bonus plan was discretionary. He argues that the respondent had an obligation to exercise the discretion in a fair and reasonable manner. Specifically, he says that there must be a process for assessing bonuses, using objective criteria. In this case, the appellant states that the respondent simply did not exercise any discretion.

42The appellant argues that the motion judge erred in law because he did not accept that determining his entitlement to a bonus required the respondent to exercise its discretion in a fair and reasonable manner.

43The difficulty with this argument is that it ignores the facts of this case. As explained below, I reject this ground of appeal.

44The appellant accepted the offer of employment. He knew that he had a right to participate in a bonus plan and nothing more. He knew that the bonus plan was discretionary, followed no fixed formula, could vary significantly year to year and was decided annually by the owners. He “freely agreed” that his bonus would be subject to a discretionary determination of the value of contributions at year end. As the motion judge stated, the respondent’s “decision prevails for better and for worse, in good times and in bad.”

45The motion judge considered this issue and made findings of fact as follows:

45 There is no suggestion on the evidence that the plaintiff was ever given any indication of any particular formula to be applied in assessing his contributions. The plaintiff sought to argue that the process was not "arbitrary" but the cross-examination of Ms. Hawkins revealed no formula nor any basis upon which the process could be described as objective or non-discretionary. Mr. Fraser's affidavit made generalizations about the bonus history of all senior executives, but he admitted that he had no information about any of them except Mr. Tuzi and Mr. Puddy. Of these, Mr. Puddy denied ever having shared his own bonus history. Ms. Hawkins had numerous examples of nil bonus being awarded which the plaintiff was unable to contradict.

54 If the bonus plan were to be treated as objective for purposes of assessing damages in wrongful dismissal cases, then it must logically be considered objective for ALL purposes and not merely end-of-employment questions. Merely stating the proposition is sufficient to reject it -- the court is in no position to sit as a court of appeal weighing allegedly unfair bonus calculations for active employees or to hear constructive dismissal suits based on allegations that a particular decision regarding bonus in a year was alleged to be unfair.

46When Ms. Hawkins was cross-examined, she stated that the appellant was not entitled to a bonus because “his contributions in 2014 did not warrant a bonus”. As already noted, the motion judge found that Ms. Hawkins assessment of the appellant’s performance was negative. There was no evidence that the appellant had originated or closed any acquisitions in 2014. There was also no evidence that the divisions the appellant managed were profitable or that his efforts had a positive impact in the five and half months he worked in 2014. This was the only evidence before the motion judge, against which the bonus entitlement could be assessed. The reasonable exercise of discretion did not support a bonus on these facts.

Reliance on Anonymous Data to Calculate the Bonus

47The appellant states that the motion judge made a palpable and overriding error of fact because he relied on anonymous data to calculate the bonus.

48The motion judge embarked on a calculation of the bonus in the event he was wrong in his decision to deny the bonus claim. In para. 70, he explained his approach:

If I am wrong in declining to attempt to quantify an accrual of bonus for 2014 until the end of the notice period, I would have calculated the plaintiff's entitlement based upon the only evidence I have to go on being a comparison of the plaintiff's bonus history with the bonus history of other employees who received bonus in 2014. Of the five similar-level employees for whom some data was provided (anonymized through the use of letters), only the first three (Employee A, B and C) would appear to me to be at least partly comparable. Of these, employee "A" provides the nearest thing to a viable comparator. This employee clearly had some negatives associated with his or her 2014 performance review since bonus for 2014 was assessed at a level of only 30% of the level that had been awarded for 2013 (contrasted, for example, with Employee B whose bonus was unchanged year over year).

49The motion judge did not rely solely on the anonymous data. In addition to identifying Employee A as “the nearest thing to a viable comparator”, the motion judge reviewed the only evidence he had about the applicant’s performance in 2014. This performance as already noted was negative.

50The applicant argues that the evidence about his performance was an ex post facto justification for not paying him any bonus on termination. The motion judge considered and rejected this argument at para. 47. In particular, the motion judge noted that there was no evidence from the appellant about his accomplishments in 2014 and therefore no basis to challenge the bona fides of Ms. Hawkins evidence:

Ms. Hawkins' negative subjective assessments of Mr. Fraser's contributions cannot simply be dismissed from consideration in examining bonus entitlement. They were not entirely ex post fact as they were instrumental in her decision to terminate his employment (albeit not rising to the level of an allegation of cause). She had assumed direct supervision over him for 2014 and would have had primary responsibility for assessing his bonus entitlements in 2014 had he not been terminated. I have no basis to challenge the bona fides of her negative assessment of his contributions at the time of her decision to terminate his employment.

51In summary, there is simply no basis for concluding that the motion judge made a palpable and overriding error in the calculation of the bonus. This ground of appeal is rejected.

leave to appeal the costs order

52Leave to appeal a costs order is only granted in cases where there are strong grounds to believe that the judge awarding costs has erred in principle or is plainly wrong in the exercise of his or her discretion (see: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303 at para. 27; McNaughton Automotive Ltd. v. Co-operators General Insurance Co., 2008 ONCA 597, at paras. 24-26; Gentra Canada Investments Inc. v. Lipson, 2011 ONCA 331, at para. 67).

53The motion judge awarded the respondent costs of $7,500 all inclusive. This award was based on the motion judge’s finding that the respondent was successful in the issues of inducement and bonus entitlement.

54The appellant did not present any grounds for accepting that the motion judge erred in principle or was plainly wrong in the exercise of his discretion to award costs. Leave to appeal the costs order is denied.

conclusion

55The applicant’s appeal is dismissed.

56The parties have agreed on costs. The appellant shall pay the respondent costs of the appeal, fixed at $10,000 all inclusive.

___________________________ C. Horkins J.

H. McLean J.

L. Pattillo J.