Court of Appeal for Ontario

Date: February 27, 2018

Docket: C63051

Judges: LaForme, Rouleau and van Rensburg JJ.A.

Parties

Between

David Bain Plaintiff/Respondent

and

UBS Securities Canada Inc. and UBS Securities LLC Defendants/Appellants

Counsel

For the Appellants: Dan J. Shields and Hendrik Nieuwland

For the Respondent: Chris G. Paliare and Tina Lie

Hearing

Heard: February 1, 2018

On appeal from: The judgments of Justice Darla A. Wilson dated November 4, 2016, reported at 2016 ONSC 5362 and March 3, 2017, reported at 2017 ONSC 1472.

Reasons for Decision

Introduction

[1] This is an appeal of a judgment following a trial in a wrongful dismissal action. The respondent David Bain was an investment banker employed by the appellant UBS Securities Canada Inc. ("UBS"). Bain was dismissed without cause on February 28, 2013, which UBS concedes, as a result of the closure of UBS's Canadian Mergers & Acquisitions arm, in which Bain held the position of Managing Director and Head. The trial judge fixed the reasonable notice period at 18 months, and awarded damages (inclusive of amounts for cash and deferred bonuses and an amount for vacation pay), prejudgment interest and costs.

[2] A number of issues raised at trial are not in dispute in this appeal. In particular, the appellant does not contest the trial judge's determination of the period of reasonable notice, her finding that Bain's bonus was an integral part of his compensation, the calculation of the annual bonuses that Bain would have earned for 2012 and during his reasonable notice period (and the comparators used), or her conclusion that Bain was entitled to damages for the loss of the cash portion of his bonus for 2012 and the cash bonus he would have received if his employment had continued during the reasonable notice period.

[3] The principal issue on this appeal is whether the trial judge erred in awarding Bain damages that included amounts in respect of the loss of the deferred portions of his bonus. UBS also appeals the amounts awarded, but not Bain's entitlement, in respect of vacation pay, prejudgment interest and costs. We deal with each issue in turn.

The Deferred Portion of Bain's Bonus

[4] From the time he was first employed by UBS's predecessor Bain earned annual compensation consisting of salary and bonus. For the first eight years Bain's bonus was paid entirely in cash. From 2008 onwards, UBS determined the amount of bonus for the year, and if the amount exceeded the equivalent of 250,000 Swiss Francs, 40% was paid in cash and the other 60% was placed into an account in the form of "notional shares" in UBS AG[1], which would fluctuate over time as the value of global UBS's share price changed, and which would "vest" in equal amounts over a number of years. The deferred portion of the bonus was allocated and paid under UBS's Equity Ownership Plan (the "EOP").

[5] Once the decision was made to terminate his employment, Bain was not allocated or paid any bonus for 2012. After considering the bonus allocation process, Bain's performance in 2012, the bonuses awarded to certain other UBS employees considered "comparators", and how UBS would reasonably have exercised its discretion in the bonus process, the trial judge determined the amounts of Bain's bonus for the 2012 year, for the stub year of 2013 preceding the termination of his employment, and for the bonus Bain would have earned had he remained employed during the 18 month notice period.

[6] On appeal UBS does not dispute the bonus amounts the trial judge concluded that Bain would have earned. UBS only contests the inclusion in those amounts of the deferred portion; that is, the amounts that Bain would have been allocated by way of notional shares, which would have vested in the future, after the expiry of the notice period. The amount in dispute is 60% of the bonus, approximately $1.2 million.

[7] UBS makes two arguments with respect to the deferred portion of Bain's bonus. First, it asserts that Bain was entitled to damages for lost bonus only in respect of amounts he would have received prior to his termination and during the notice period. Second, UBS relies on the wording of certain provisions of the EOP to exclude from Bain's damages the deferred portion of his bonus.

[8] We do not give effect to these arguments.

The Common Law Right to Damages

[9] In Paquette v. TeraGo Networks Inc., 2016 ONCA 618, 352 O.A.C. 1, at paras. 29-31, this court articulated a two-part test that is applicable here. In order to determine whether a terminated employee is entitled to damages on account of a lost bonus, first, the court must determine whether the plaintiff has a common law right to damages for breach of contract that would include compensation for a lost bonus. Second, the court must consider whether there is language in the bonus plan that "unambiguously alters or removes" the common law entitlement. See also Taggart v. Canada Life Assurance Co. (2006), 50 C.C.P.B. 163 (Ont. C.A.), at para. 12.

[10] With respect to the first part of the test, UBS accepts that, if Bain had remained employed during the period of reasonable notice, he would have been awarded bonuses in the amounts determined by the trial judge.

[11] UBS asserts however that while Bain was entitled to the cash amount of the bonus that he would have received during the reasonable notice period, he was not entitled to any portion that he would not have received during his employment and the notice period.

[12] First we note that Bain had a contractual right to receive compensation that included bonus in the event of his termination without cause. His letter of hire, which continued in force, provided that in the event of his termination, Bain would receive "not less than six (6) months' notice or compensation in lieu thereof", and that "for greater clarity, the amount of equivalent compensation [would] be determined by reference to salary and bonuses". His letter of termination offered to pay Bain the sum of $495,133 as the equivalent of 14 months' notice. The amount corresponds with the average of Bain's total compensation for the prior two years, calculated by UBS as including both the cash and deferred portions of the bonus.

[13] Notwithstanding UBS's own contractual documents, it asserts that it was not required to pay Bain compensation for any deferred portion of any bonus notwithstanding that the deferred portion would have been earned by Bain during his employment and during the reasonable notice period. This is contrary to settled law. As this court noted in Taggart at para. 13, "where an employer terminates an employee without cause, the employer is liable for damages for breach of contract, measured by the loss of wages or salary and other benefits that would have been earned during the reasonable notice period". In that case the terminated employee was entitled to damages that included his pension accrual during the notice period. See also Arnone v. Best Theratronics Ltd., 2015 ONCA 63, 329 O.A.C. 284, at paras. 30-32.

[14] UBS points to the references in Paquette to bonuses that the appellant in that case would have "received" (at paras. 23 and 30) in support of its argument that Bain's damages should not include any amount for the deferred portion of his bonus. In Paquette the bonus claim was for what the appellant would have earned and received during the notice period. There was no deferred portion of a bonus, nor was there a claim for the loss of opportunity to earn a bonus in a partial year during the reasonable notice period. Paragraph 17 of that case correctly states the law: "[d]amages for wrongful dismissal may include an amount for a bonus the employee would have received had he continued in his employment during the notice period, or damages for the lost opportunity to earn a bonus" (emphasis added). Similarly, in Lin v. Ontario Teachers' Pension Plan Board, 2016 ONCA 619, 352 O.A.C. 10, another case relied on by UBS, this court held, at para. 89, that the opportunity to "earn" a bonus was relevant to damages. There was no claim to or award of damages for bonus amounts that would have been paid to the plaintiff outside the notice period because of the terms of the agreement in that case, which provided for grants not vested at the time of termination to be forfeited without right of compensation.

[15] Here, while the notional shares would not have vested before the end of the reasonable notice period, there is no question that the bonus was "earned" by Bain during that period.

Plan Language

[16] UBS's second argument with respect to the damages award for the deferred portion of Bain's bonus relies on the wording of the bonus plan. UBS argues that s. 2.2 of the 2012/13 EOP and certain clauses of s. 7.1 of the plan's Common Terms meet the second part of the test in Paquette in that they unambiguously alter or remove the entitlement.

[17] We disagree. The reference in s. 2.2 to awards being granted to "employees" does not disentitle a terminated employee from having the deferred portion of his bonus included as part of a wrongful dismissal award. As this court noted in Paquette at para. 35, a requirement that the recipient be employed in order to receive a bonus, "does not prevent the [recipient] from receiving, as part of his wrongful dismissal damages, compensation for the bonuses he would have received had his employment continued during the period of reasonable notice."

[18] Nor do the provisions of s. 7.1 unambiguously exclude Bain's claim for damages for the deferred part of his bonus. Section 7.1.6 purports to exclude a claim or right of action in respect of UBS's exercise of discretion. Section 7.1.7 excludes an employee's "right to compensation for any loss in relation to a plan". The claim here is not for compensation for a loss in relation to a plan, or for the improper exercise of discretion. The claim is to have included in his compensation on termination the amounts of the deferred part of his bonus – amounts that pursuant to the plain terms of his employment contract, he would be entitled to expect. Neither provision clearly disentitles Bain to a right to damages for his lost bonus on termination.

[19] This conclusion is reinforced by s. 5.2 of the 2012/13 EOP which provides that unvested awards will not be forfeited and will continue to vest in accordance with the terms of the EOP and Common Terms, if employment is terminated (as here) due to redundancy. The trial judge reasonably concluded that, had Bain been awarded a bonus in 2013 for his 2012 performance, which included stock options that would have vested in the future, such options would have continued to vest and would not have been forfeited (at para. 128).

[20] For these reasons the trial judge did not err in including the deferred portions of Bain's bonus for 2012, the stub year 2013 and the reasonable notice period in Bain's damages award.

Vacation Pay

[21] At trial the parties agreed that Bain was entitled to compensation for a total of 20.10 vacation days, which included vacation he had not taken in 2012, and vacation accrued during his statutory notice period. They disagreed about whether vacation pay should be based on Bain's salary or, as the trial judge found, his overall compensation including bonus.

[22] The trial judge awarded vacation pay of $87,472, after deducting the amount Bain received for vacation pay when his employment was terminated. The amount was based on Bain's salary and the average bonus of the comparators for 2013. On appeal UBS says that the amount ought to have been $5,700, and based on Bain's salary only.

[23] An employee's entitlement to vacation pay under the Employment Standards Act, 2000, S.O. 2000, c. 41, is determined as a percentage of the employee's wages. "Wages" is defined as "monetary remuneration payable by an employer to an employee under the terms of an employment contract" but does not include "sums paid as gifts or bonuses that are dependent on the discretion of the employer and that are not related to hours, production or efficiency".

[24] The trial judge considered the evidence, which included a description of the detailed and methodical approach of UBS to determining bonuses, and the acknowledgment of its witness that bonus was tied to "production" and "efficiency". She reasonably concluded that the bonuses here were "based in part on how an employee produced and how diligent he or she was in their work at UBS" and that while the bonus was discretionary, there were definite factors on which it was based, including performance (at paras. 153 and 154). We see no reason to interfere here, or, as proposed by UBS, to read into the exception in the definition of "wages" the requirement that numerical "targets" would be required before a bonus could be considered to be related to hours, production or efficiency.

Prejudgment Interest

[25] The trial judge awarded prejudgment interest on the entire net amount of Bain's damages commencing at the date of his termination (the "lump sum" basis). She rejected UBS's argument, which is renewed on appeal, that prejudgment interest ought to have been calculated on the payments Bain would have received had he worked during the notice period (the "instalment" basis). The difference is $44,585.81.

[26] The appellant accepts that a trial judge's approach to determining how prejudgment interest should be calculated under s. 130 of the Courts of Justice Act, R.S.O. 1990, c. C.4, including in wrongful dismissal cases, is an exercise of discretion and entitled to deference. UBS also acknowledges that this court has affirmed the use of both approaches in wrongful dismissal cases. UBS argues however that this court should endorse, on a principled basis, the instalment approach in wrongful dismissal cases.

[27] We are not prepared to interfere with the trial judge's determination of prejudgment interest in this case. In Chang v. Simplex Textiles Ltd. (1985), 7 O.A.C. 137, this court adverted to the debate between the instalment approach and the lump sum approach to awards of prejudgment interest on damages for wrongful dismissal, and stated, at para. 16, that the trial judge's exercise of discretion should not be interfered with provided it had "a logical basis and [was] in general accord with similar but not identical dispositions in other unjust dismissal cases". This approach was cited with approval by this court in Stevens v. Globe & Mail (1996), 28 O.R. (3d) 481 (C.A.), at para. 33.

[28] As in Lowndes v. Summit Ford Sales Ltd. (2006), 206 O.A.C. 55, it is unnecessary for the disposition of the appeal to determine whether an award of prejudgment interest on a lump sum basis is generally appropriate in a wrongful dismissal case (at para. 23).

[29] Here the trial judge carefully considered the particular circumstances of the case, including "what should have been done, what actually was done, and how to restore [Bain] to the same position [he] would have been in had the proper payments been made at the time of termination" (at para. 36). She considered relevant the fact that Bain had received an offer of a lump sum payment, and that there was no option of salary continuance. Interest on the 2012 bonus ran from the end of February 2013, which was when Bain would have been paid the bonus. Interest on the stub portion of the bonus for 2013, the compensation to which Bain was entitled for the period of reasonable notice and vacation pay, would run from March 22, 2013, the date he left UBS. There is no reason to interfere with this exercise of discretion, which was supported by the evidence considered by the trial judge.

Costs

[30] The appellant seeks a reduction of approximately $70,000 in the costs of the action. Its argument is essentially that the trial judge ought to have used the partial indemnity "grid" rates set out in the preamble to Rule 57, "Information for the Profession", rather than basing partial indemnity costs on 60% of the actual rates charged by the respondent's counsel.

[31] This court should interfere with a costs order only if the trial judge made an error in principle, or the award was plainly wrong: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27.

[32] We see no such error here. There is no requirement to apply the "grid" rates, which are out of date, rather than 55 to 60% of a reasonable actual rate: Inter-Leasing Inc. v. Ontario (Minister of Revenue), 2014 ONCA 683, at para. 5. Akagi v. Synergy Group (2000) Inc., 2015 ONCA 771, 128 O.R. 64, a case relied on by the appellant, does not reject an approach to partial indemnity costs based on 60% of the actual rate charged. After referring to the 60% approach, the court stated at para. 55:

…fixing costs of a proceeding or of a step within a proceeding on a partial indemnity basis…is not simply an exercise of multiplying hourly rates by the amount of time expended. The court must balance the discretionary factors set out in r. 57.01(1) and, in the end, arrive at an amount that is reasonable and fair in the circumstances and that bears some relationship to the amount that an unsuccessful party could reasonably expect to pay.

[33] This is exactly the approach taken by the trial judge in the present case. While she accepted partial indemnity fees based on 60% of the actual fees charged as reasonable, she considered all of the relevant factors under r. 57.01, including the amount in dispute, the outcome of the trial, the conduct of the parties, the offers made, and the reasonableness of the hours claimed in arriving at an award of costs of $225,000 plus taxes and disbursements.

[34] There is no reason to interfere with the trial judge's assessment of Bain's costs.

Disposition

[35] The appeal is therefore dismissed. Costs of the appeal to the respondent in the agreed amount of $25,000, inclusive of HST and disbursements.

"H.S. LaForme J.A."

"Paul Rouleau J.A."

"K. van Rensburg J.A."

Footnote

[1] Initially, Bain's employer, UBS, was a joint venture company effectively owned 50% by employee shareholders and 50% by UBS AG. In March 2006 UBS AG purchased all the employee shareholdings to become the sole owner of UBS.