Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20210312 DOCKET: C66315

Fairburn A.C.J.O., Lauwers and Nordheimer JJ.A.

BETWEEN

Ivars Mikelsteins Plaintiff (Respondent)

and

Morrison Hershfield Limited Defendant (Appellant)

Counsel: David E. Greenwood and Christopher McClelland, for the appellant James D. Heeney and Julia Burke, for the respondent

Heard: in writing

On remand from the order of the Supreme Court of Canada, dated November 19, 2020.

Reasons for Decision

[1] On June 20, 2019, we released our decision allowing the appeal from the judgment of the Superior Court of Justice dated November 22, 2018 in this matter. [1] On November 19, 2020, the Supreme Court of Canada, in response to a motion for leave to appeal by the respondent, rendered judgment remanding this matter to this court pursuant to s. 43(1.1) of the Supreme Court Act, R.S.C. 1985, c. S-26 for disposition in accordance with its decision in Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26, 449 D.L.R. (4th) 583.

[2] After the remand was made, this court requested and received written submissions from the parties.

The Principal Issue

[3] The background to this matter is set out in detail in our reasons on the appeal. It is unnecessary to repeat all of that detail. In brief, the respondent commenced an action for wrongful dismissal. He then brought a motion for summary judgment. The motion judge awarded the respondent damages for wrongful dismissal. That award was not appealed. The motion judge also determined that the respondent was entitled to an additional payment for the shares that he held in the appellant’s parent corporation, Morrison Hershfield Group Inc., and a further entitlement to a share bonus. Those awards were the subject of the appeal.

[4] The respondent was one of a select group of the appellant’s employees who were eligible to purchase shares of Morrison Hershfield Group Inc. Those shares were governed by the terms and conditions of the Amended and Restated Morrison Hershfield Group Inc. Shareholders’ Agreement, dated January 18, 2013 (the “Shareholders’ Agreement”). At the time that his employment was terminated, the respondent owned a total of 5,108 shares.

[5] Under the terms of the Shareholders’ Agreement, the respondent, and other shareholders, were eligible to receive annual “Share Bonuses”. The share bonus payable in respect of each share is determined by an objective calculation based on the company’s financial results. The total share bonus payable to each shareholder depends on the total number of shares that the shareholder had previously decided to purchase. As we said in our earlier reasons, the share bonus is not related to the shareholder’s contributions as an employee of the appellant. It is, in effect, a dividend.

[6] With respect to the respondent’s shareholdings, the motion judge determined that the respondent was entitled to: (i) hold the shares until the end of the reasonable notice period (i.e. 26 months after he was notified of his termination and his association with the appellant had ceased); and (ii) receive damages for the loss of the share bonus that would have been payable during such 26-month period.

[7] Article 3 of the Shareholders’ Agreement deals with “Automatic Transfer Notices”, and applies in situations where, among other things, a shareholder resigns, is terminated, becomes bankrupt, or dies. Article 3.2 applies in cases of termination, and states:

A Shareholder whose association with the Corporation and its Affiliates ceases by reason of termination by the Corporation of his/her employment with the Corporation and its Affiliates shall, immediately after such termination, be deemed to have given a Transfer Notice covering all of the Shares held by him/her on a date which is 30 days from the date he/she is notified of such termination by the Corporation.

The Shareholders’ Agreement proceeds to specify that a shareholder that is deemed to have given a Transfer Notice under Article 3 is entitled to the “Fair Value” of his or her shares (as that term is defined in the Shareholders’ Agreement).

[8] Contrary to the motion judge’s conclusions, we determined that the respondent was not entitled to have his shares valued as at the end of the notice period nor was he entitled to the share bonuses during that time.

[9] The question that is now before us is whether the decision of the Supreme Court of Canada in Ocean Nutrition would direct that different conclusions ought to have been reached on those two issues. We conclude that it would not.

[10] In Ocean Nutrition, at para. 55, Kasirer J. concluded that, in assessing an employee’s damages arising from a wrongful dismissal, a court should ask itself two questions:

(i) Would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period?

(ii) If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right?

[11] One very important factual point underpins these two questions. They are both directed at determining the rights of the employee qua employee. That is, they are both directed at determining the damages that an employee is entitled to arising from a breach of the contract of employment.

[12] In this case, the respondent’s claim to the dividend does not arise from the breach of his contract of employment. Rather, we were determining the respondent’s rights as a shareholder of Morrison Hershfield Group Inc. pursuant to the Shareholders’ Agreement. In that regard, it is of importance to remember that the respondent did not receive his shares in Morrison Hershfield Group Inc. as some form of compensation as an employee of the appellant. To the contrary, the respondent was given the opportunity to use his own funds to purchase shares in Morrison Hershfield Group Inc. When he elected to do so, the respondent’s rights regarding his shares were dictated by the terms of the Shareholders’ Agreement.

[13] The decision in Ocean Nutrition does not change the proper analysis to be applied to the issues raised on the appeal in this case. The respondent’s entitlement respecting his shares falls to be determined by his rights as a shareholder of Morrison Hershfield Group Inc., not by his status as a terminated employee of the appellant. To conclude otherwise would run the risk of interfering with the established law on the rights and obligations of shareholders, much of which is codified in corporate statutes such as the Business Corporations Act, R.S.O. 1990, c. B.16 and the Canada Business Corporations Act, R.S.C. 1985, c. C-44.

[14] Just by way of example, s. 32 of the Business Corporations Act provides that a corporation may purchase or redeem any redeemable shares issued by it, which, in one sense, is what happened in this case. As we observed in our decision, there are very good reasons why an employee-owned corporation would not wish an employee to be able to exercise all of the rights of a shareholder once their employment is terminated.

[15] We would add that the treatment of the payment of the amounts under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), does not change the law applicable to the rights being determined under the Shareholders’ Agreement.

Other Issues Raised

[16] The respondent raises certain other issues, including the possible application of the Employment Standards Act, 2000, S.O. 2000, c. 41. With respect, the remand of this matter does not invite a wholesale reopening of the appeal and all matters relating to it: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293, 135 O.R. (3d) 241, at para. 14, leave to appeal refused, [2016] S.C.C.A. No. 249. Rather, the remand is restricted to its terms, which was for “disposition in accordance with David Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26.”

[17] None of the other issues raised by the respondent arise from the decision of Ocean Nutrition. Indeed, the Supreme Court of Canada expressly declined to deal with the application of minimum employment standards in its decision. Consequently, those issues are not open for re-argument.

[18] Finally, the respondent sought a further oral hearing in this matter. The appellant said that no further oral argument was required. We agree with the appellant. The issue to be determined can be properly resolved through the written submissions of the parties.

Conclusion

[19] For these reasons, having reconsidered our decision in light of Ocean Nutrition, we affirm our earlier appeal decision. The appellant is entitled to its costs of the remand proceeding fixed in the amount of $10,000, inclusive of disbursements and HST.

“Fairburn A.C.J.O.”

“P. Lauwers J.A.”

“I.V.B. Nordheimer J.A.”

[1] Mikelsteins v. Morrison Hershfield Limited, 2019 ONCA 515, 56 C.C.E.L. (4th) 1.