Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26

Supreme Court of Canada Heard: October 8, 2019 | Judgment: October 9, 2020 File No.: 38252

Coram: Wagner C.J. and Moldaver, Côté, Brown, Rowe, Martin and Kasirer JJ.

Reasons for Judgment: Kasirer J. (Wagner C.J. and Moldaver, Côté, Brown, Rowe and Martin JJ. concurring)

Parties

Appellant: David Matthews

Respondent: Ocean Nutrition Canada Limited

Interveners: Canadian Association for Non‑Organized Employees; Don Valley Community Legal Services; Law Students' Legal Advice Program; Canadian Association of Counsel to Employers; Parkdale Community Legal Services

Overview of the Case

Employment law — Constructive dismissal — Duty to provide reasonable notice — Damages — Employee working for employer for approximately 14 years — Employer providing long term incentive plan according to which employee would receive bonus payment if company sold — Company sold soon after employee constructively dismissed — Whether damages for breach of duty to provide reasonable notice include incentive bonus.

Beginning in 1997, M, an experienced chemist, occupied several senior management positions with Ocean Nutrition Canada Limited ("Ocean"). As a senior executive, M was part of Ocean's long term incentive plan ("LTIP"), a contractual arrangement designed to reward employees for their previous contributions and to provide an incentive to continue contributing to the company's success. Under the LTIP, a "Realization Event", such as the sale of the company, would trigger payments to employees who qualified under the plan. In 2007, Ocean hired a new Chief Operating Officer, who began a campaign to marginalize M in the company, limiting M's responsibilities and lying to M about his status and prospects with Ocean. Despite his problems with senior management, the LTIP was a key reason for which M wanted to stay with Ocean, anticipating Ocean would soon be sold. However, M eventually left Ocean in June 2011, taking a position with a new employer.

About 13 months after M's departure, Ocean was sold for $540 million. The sale constituted a Realization Event for the purposes of the LTIP. Since M was not actively employed on that date, Ocean took the position that M did not satisfy the terms of the plan, and he did not receive a payment. M filed an application against Ocean alleging that he was constructively dismissed, and that the constructive dismissal was carried out in bad faith and in breach of Ocean's duty of good faith. The trial judge concluded that Ocean constructively dismissed M, and that M was owed a reasonable notice period of 15 months. The trial judge also held that M would have been a full‑time employee when the Realization Event occurred had he not been constructively dismissed, and that, because the terms of the LTIP did not unambiguously limit or remove his common law right to damages, M was entitled to damages equivalent to what he would have received under the LTIP. The Court of Appeal unanimously upheld the decision that M had been constructively dismissed and that the appropriate reasonable notice period was 15 months. However, a majority of the court found that M was not entitled to damages on account of the lost LTIP payment.

Held: The appeal should be allowed, the judgment of the Court of Appeal set aside and the trial judgment restored.

Legal Principles

At common law, an employer has the right to prompt an employee to choose to leave their job in circumstances that amount to a dismissal subject to the duty to provide reasonable notice. The obligation to provide reasonable notice does not, in theory, turn on the presence or absence of good faith. The contractual breach that arises from the employer's choice is simply the failure to provide reasonable notice, which leads to an award of damages in lieu thereof. A breach of the duty to exercise good faith in the manner of dismissal is a distinct contractual breach and is independent of any failure to provide reasonable notice. It can serve as a basis to answer for foreseeable injury that results from callous or insensitive conduct in the manner of dismissal. Damages arising out of the same dismissal are calculated differently depending on the breach invoked. The nature of the contractual breach of good faith is of a different order than that associated with the failure to provide reasonable notice.

Courts should ask two questions when determining whether the appropriate quantum of damages for breach of an implied term to provide reasonable notice includes bonus payments. First, courts should consider the employee's common law rights and examine whether, but for the termination, the employee would have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period. Second, if so, courts should determine whether the terms of the employment contract or bonus plan unambiguously take away or limit that common law right. This approach accords with basic principles of damages for constructive dismissal, anchoring the analysis around reasonable notice. When an employee sues for damages for constructive dismissal, they are claiming for damages as compensation for the income, benefits, and bonuses they would have received had the employer not breached the implied term to provide reasonable notice. This approach respects the well‑established understanding that the contract effectively remains alive for the purposes of assessing the employee's damages, in order to determine what compensation the employee would have been entitled to but for the dismissal. Damages for wrongful dismissal are designed to compensate the employee for the breach by the employer of the implied term in the employment contract to provide reasonable notice of termination. There is no such implied term of the contract to provide payment in lieu. The payment in lieu is not damages for a breach of the contract, but rather one component of the compensation provided for in the contract. If an employer fails to give proper notice or pay in lieu, the breach is in the failure to pay, not in the termination.

In the present case, in determining whether M's damages include an amount to compensate him for his lost LTIP payment, the focus should be on what damages were appropriately due for Ocean's failure to provide M with reasonable notice and not on whether the terms of the LTIP were plain and unambiguous. The issue is not whether M is entitled to the LTIP in itself, but rather what damages he is entitled to and, specifically, whether he was entitled to compensation for bonuses he would have earned had Ocean not breached the employment contract. It is uncontested that the Realization Event occurred during the notice period and therefore, but for M's dismissal, he would have received an LTIP payment during that period. In such circumstances, there is no need to ask whether the LTIP payment was integral to his compensation. On the first question, M is prima facie entitled to receive damages as compensation for the lost bonus. On the second question, the LTIP does not unambiguously limit or remove M's common law right. Had M been given proper notice, he would have been full‑time or actively employed throughout the reasonable notice period. For the purpose of calculating wrongful dismissal damages, the employment contract is not treated as terminated until after the reasonable notice period expires. M should therefore be awarded the amount of the LTIP as part of his common law damages for breach of the implied term to provide reasonable notice. On the issue of good faith, it suffices to say that a contractual breach of good faith rests on a wholly distinct basis from that relating to the failure to provide reasonable notice.

Cases Cited

Approved: Paquette v. TeraGo Networks Inc., 2016 ONCA 618, 352 O.A.C. 1; Lin v. Ontario Teachers' Pension Plan Board, 2016 ONCA 619, 352 O.A.C. 10; Taggart v. Canada Life Assurance Co. (2006), 50 C.C.P.B. 163.

Distinguished: Styles v. Alberta Investment Management Corp., 2017 ABCA 1, 44 Alta. L.R. (6th) 214.

Referred to: Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494; Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701; Honda Canada Inc. v. Keays, 2008 SCC 39, [2008] 2 S.C.R. 362; Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986; Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, [2015] 1 S.C.R. 500; Hadley v. Baxendale (1854), 9 Ex. 341, 156 E.R. 145; Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3; Farber v. Royal Trust Co., [1997] 1 S.C.R. 846; Evans v. Teamsters Local Union No. 31, 2008 SCC 20, [2008] 1 S.C.R. 661; Iacobucci v. WIC Radio Ltd., 1999 BCCA 753, 72 B.C.L.R. (3d) 234; Gillies v. Goldman Sachs Canada Inc., 2001 BCCA 683, 95 B.C.L.R. (3d) 260; Nygard Int. Ltd. v. Robinson (1990), 46 B.C.L.R. (2d) 103; Singer v. Nordstrong Equipment Limited, 2018 ONCA 364, 47 C.C.E.L. (4th) 218; Brock v. Matthews Group Ltd. (1988), 20 C.C.E.L. 110, aff'd (1991), 34 C.C.E.L. 50; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23; Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69; Schumacher v. Toronto‑Dominion Bank (1997), 147 D.L.R. (4th) 128; Bauer v. Bank of Montreal, [1980] 2 S.C.R. 102; Veer v. Dover Corp. (Canada) Ltd. (1999), 120 O.A.C. 394; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; Styles v. Alberta Investment Management Corp., 2015 ABQB 621, [2016] 4 W.W.R. 593; Sylvester v. British Columbia, [1997] 2 S.C.R. 315; Love v. Acuity Investment Management Inc., 2011 ONCA 130, 277 O.A.C. 15; Dunlop v. B.C. Hydro & Power Authority (1988), 32 B.C.L.R. (2d) 334; Poole v. Whirlpool Corp., 2011 ONCA 808, 97 C.C.E.L. (3d) 20; Doyle v. Zochem Inc., 2017 ONCA 130, 31 C.C.P.B. (2nd) 200; Gismondi v. Toronto (City) (2003), 64 O.R. (3d) 688; Reference re Public Service Employee Relations Act (Alta.), [1987] 1 S.C.R. 313.

Statutes and Regulations Cited

Canada Business Corporation Act, R.S.C. 1985, c. C‑44, s. 241(1).

Authors Cited

Anderson, Gordon, Douglas Brodie and Joellen Riley. The Common Law Employment Relationship: A Comparative Study. Cheltenham, U.K.: Edward Elgar Publishing, 2017.

Banks, Kevin. "Progress and Paradox: The Remarkable yet Limited Advance of Employer Good Faith Duties in Canadian Common Law" (2011), 32 Comp. Lab. L. & Pol'y J. 547.

Buchanan, Dennis D. "Defining Wrongful Dismissal: The Alberta Schism" (2019), 57 Alta. L. Rev. 95.

England, Geoffrey. Individual Employment Law, 2nd ed. Toronto: Irwin Law, 2008.

Fudge, Judy. "The Limits of Good Faith in the Contract of Employment: From Addis to Vorvis to Wallace and Back Again?" (2007), 32 Queen's L.J. 529.

Mummé, Claire. "Bhasin v. Hrynew: A New Era for Good Faith in Canadian Employment Law, or Just Tinkering at the Margins?" (2016), 32 Int'l J. Comp. Lab. L. & Ind. Rel. 117.

Appeal

APPEAL from a judgment of the Nova Scotia Court of Appeal (Farrar, Bryson and Scanlan JJ.A.), 2018 NSCA 44, 2018 C.L.L.C. ¶210‑053, 48 C.C.E.L. (4th) 171, [2018] N.S.J. No. 200 (QL), 2018 CarswellNS 393 (WL Can.), setting aside in part a decision of LeBlanc J., 2017 NSSC 16, [2017] N.S.J. No. 32 (QL), 2017 CarswellNS 55 (WL Can.), with supplementary reasons, 2017 NSSC 123, [2017] N.S.J. No. 161 (QL), 2017 CarswellNS 325 (WL Can.). Appeal allowed.

Counsel

For the appellant: Howard Levitt, Allyson Lee, Blair Mitchell and Saba Khan.

For the respondent: Nancy F. Barteaux, Q.C., Mary B. Rolf and Kate E. Ross.

For the intervener the Canadian Association for Non‑Organized Employees: Stacey Reginald Ball, Nadine Côté and Sean O'Donnell.

For the intervener Don Valley Community Legal Services: Andrew Monkhouse and Alexandra Monkhouse.

For the intervener the Law Students' Legal Advice Program: Martin Sheard and David McWhinnie.

For the intervener the Canadian Association of Counsel to Employers: Tim Lawson, Brandon Kain and Adam Goldenberg.

For the intervener Parkdale Community Legal Services: Christopher Rootham, Andrew Montague‑Reinholdt and John No.

Judgment

The judgment of the Court was delivered by

Kasirer J. —

I. Overview

[ 1 ] This appeal bears on the redress available to an employee who, by reason of the circumstances of his departure from a job he had held for many years, is treated in law as if he were dismissed. By extension, it concerns some of the proper contours of an employer's common law right to determine the composition of its workforce.

[ 2 ] Different complaints are often made by employees who sue for wrongful dismissal. This case is no exception: in his original application, the employee alleged he was dismissed "without notice" and that this dismissal was in breach of the employer's "duty of good faith". He asked for damages reflecting his entitlement to reasonable notice, including an incentive bonus that fell due during the period, as well as damages for the employer's dishonest conduct, including punitive damages and damages in the amount of the lost bonus should it be excluded by a contractual term.

[ 3 ] At trial, the judge awarded the employee the amount he would have received under his employer's long term incentive plan ("LTIP"), as part of his damages for constructive dismissal without reasonable notice. The majority of the Court of Appeal disagreed, holding that the terms of the LTIP were plain and unambiguous and that the employee was no longer entitled to the payment once he had left the company.

[ 4 ] This appeal is, in the end, about the appropriate method for analyzing claims for wrongful dismissal, and about one of the central features of the law of constructive dismissal. For the reasons that follow, I would allow the appeal, set aside the majority judgment of the Court of Appeal, and restore the trial judgment.

II. Background

[ 5 ] The relevant facts are not controversial. I will describe them briefly.

[ 6 ] Beginning in 1997, the appellant, David Matthews, an experienced chemist, occupied several senior management positions with Ocean Nutrition Canada Limited ("Ocean"), becoming its Vice‑President, Research and Development, and then the Chief Development Officer. As a senior executive, Mr. Matthews was part of Ocean's LTIP, a contractual arrangement designed to reward employees for their previous contributions and to provide an incentive to continue contributing to the company's success.

[ 7 ] Under the LTIP, a "Realization Event", such as the sale of the company, would trigger payments to employees who qualified under the plan. The award to each employee eligible under the plan was to be calculated based on a percentage of the company's purchase price.

[ 8 ] In 2007, Ocean hired a new Chief Operating Officer, Larry Emond, who began a campaign to marginalize Mr. Matthews in the company, limiting Mr. Matthews' responsibilities and lying to Mr. Matthews about his status and prospects with Ocean. At the same time, Ocean was in the process of being groomed for sale.

[ 9 ] Despite his problems with senior management, the LTIP was a key reason for which Mr. Matthews wanted to stay with Ocean, anticipating Ocean would soon be sold. As an aside, I note that in the years that followed, there was some ambiguity about Mr. Matthews' status under the LTIP (as discussed at para. 14 below).

[ 10 ] Mr. Matthews eventually left Ocean in June 2011, taking a position with a new employer.

[ 11 ] About 13 months after Mr. Matthews' departure, Ocean was sold for $540 million. The sale constituted a Realization Event for the purposes of the LTIP. Since Mr. Matthews was not actively employed on that date, Ocean took the position that Mr. Matthews did not satisfy the terms of the plan, and he did not receive a payment.

[ 12 ] Mr. Matthews filed an application against Ocean alleging that he was constructively dismissed, and that the constructive dismissal was carried out in bad faith and in breach of Ocean's duty of good faith. He also advanced a claim for oppression under s. 241(1) of the Canada Business Corporation Act, R.S.C. 1985, c. C‑44.

III. Judicial History

A. Supreme Court of Nova Scotia (LeBlanc J.)

[ 20 ] The trial judge concluded that Ocean constructively dismissed Mr. Matthews, and that Mr. Matthews was owed a reasonable notice period of 15 months. The trial judge relied upon this Court's decision in Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, [2015] 1 S.C.R. 500, for a two-branch test for constructive dismissal: first, whether there was a unilateral change to the contract of employment; and second, whether the employer's conduct showed an intention to no longer be bound by the contract.

[ 21 ] The trial judge was satisfied that the test for constructive dismissal had been satisfied on either branch articulated in Potter. With respect to the first branch, he concluded that it was an implied term of the employment contract that Mr. Matthews would have managerial responsibilities and a senior management role and would be treated with respect.

[ 22 ] In terms of the second branch, the trial judge found that Ocean's senior manager "engaged in a course of conduct aimed at pushing Matthews out of operations and minimizing his influence and participation in operations, if not outright excluding him from operations" (para. 265). He further found that the senior manager's dishonesty, including lies about Mr. Matthews' status in the company, and Ocean's failure to address these concerns contributed to constructive dismissal.

[ 23 ] Relying on Paquette v. TeraGo Networks Inc., 2016 ONCA 618, 352 O.A.C. 1, and Lin v. Ontario Teachers' Pension Plan Board, 2016 ONCA 619, 352 O.A.C. 10, the trial judge held that Mr. Matthews was entitled to damages equal to what he would have received under the LTIP during the reasonable notice period.

[ 24 ] Given his conclusion on the LTIP, the trial judge wrote that it was unnecessary to decide whether Mr. Matthews was entitled to an equivalent amount pursuant to the oppression remedy (para. 418).

[ 25 ] Based on his findings, the trial judge awarded Mr. Matthews lost earnings, $1,086,893.36 for the loss of the LTIP payment he would have received during the notice period, and other benefits, less amounts earned in mitigation.

[ 26 ] The trial judge provided supplementary reasons regarding the quantum of damages during the reasonable notice period (2017 NSSC 123). A decision on costs was postponed pending a hearing on the issue, and costs were ultimately awarded in Mr. Matthews' favour by the trial judge in separate reasons.

B. Court of Appeal of Nova Scotia (Farrar and Bryson JJ.A., Scanlan J.A. dissenting)

[ 27 ] The judges on appeal all agreed that Mr. Matthews' original claim for wrongful dismissal and for an oppression remedy had "morphed" into a case of constructive dismissal (2018 NSCA 44, 48 C.C.E.L. (4th) 171, at para. 4). The judges also agreed that the trial judge was correct to find that Ocean constructively dismissed Mr. Matthews, that a 15‑month notice period was appropriate, and that punitive damages should not be awarded.

(1) Majority Reasons (Farrar J.A., Bryson J.A. Concurring)

[ 28 ] The majority judges disagreed with the trial judge that Mr. Matthews was entitled to damages on account of the lost LTIP payment. The trial judge confused an employee's right to reasonable notice with an employee's ability to recover under an incentive plan. The proper question, they said, was "whether the employee qualifie[d] pursuant to the terms of the agreement" (para. 63).

[ 29 ] In their view, clause 2.03 of the LTIP was unambiguous, leading to the conclusion that Mr. Matthews' right to recover under the plan ceased the moment he left Ocean. They further held that clause 2.05 clearly stated that the LTIP could not be used for severance purposes, which, in their view, the trial judge had erroneously done. As was the case in Styles v. Alberta Investment Management Corp., 2017 ABCA 1, 44 Alta. L.R. (6th) 214, the plain and unambiguous language of the LTIP therefore deprived Mr. Matthews of the opportunity to recover under the LTIP.

[ 30 ] The majority judges went on to comment on the dissenting reasons. First, they observed that "[t]his may have been a different case if the hearing judge had concluded that [Ocean] had orchestrated Matthews' termination to avoid any liability it might have under the [LTIP]", but this was rejected by the trial judge (paras. 89-90 and 114-16). In the majority's view, the dissenting judge ignored this key finding of fact. Second, the majority judges noted that it was open for the trial judge to award "additional damages as a result of the manner in which [Mr. Matthews] was treated", but "given his finding that there was no bad faith on the part of Ocean Nutrition, he could not and did not do so" (para. 122 (emphasis added)). Even though the majority judges found for Ocean in part and reversed one portion of the judgment in first instance, it awarded no costs on appeal.

(2) Dissenting Reasons (Scanlan J.A.)

[ 31 ] Focusing principally on the allegations of mistreatment, the dissenting judge reasoned that the parties could not have "intended to agree that a rogue manager such as Emond could engineer the departure of Matthews in such a manner as to deny him, Matthews, the benefits of the LTIP" (para. 131). He further reasoned:

Neither party should be able to rely upon lies, deceit and manipulation to deny the other side of the benefits of the contractual relationship, even if that was not the primary goal of the party acting dishonestly. [para. 131]

The dissenting judge concluded that Ocean should therefore be held liable for any damages sustained as a result of that dishonesty.

[ 32 ] Justice Scanlan then presented a second path to recovery, again based on Bhasin. In his view, the employment contract included an implied term of honest performance as part of the prohibition against bad faith, and Ocean had breached that duty. This breach justified the award of damages equivalent to the LTIP payment, having been caused by a breach of the duty to perform the contract honestly.

IV. Analysis

A. Arguments on Appeal

[ 33 ] On appeal, the parties continue to disagree as to the amount that should be paid to Mr. Matthews for damages, specifically whether he was entitled to compensation for the lost LTIP payment. This Court granted leave to appeal, including on a question about good faith in employment law.

[ 34 ] At the hearing, Mr. Matthews confined his arguments almost exclusively to the consequences of Ocean's alleged dishonesty. He argued that the majority of the Court of Appeal failed to recognize that the dishonesty of Ocean's senior manager, in lying to Mr. Matthews and creating the conditions for his departure, entitled Mr. Matthews to damages in the amount of the lost LTIP.

[ 35 ] Mr. Matthews offered, secondarily, two further bases for his claim. First, he said, the majority of the Court of Appeal misdirected itself in failing to consider damages for Ocean's breach of its duty to provide reasonable notice by applying the Paquette framework. Second, Mr. Matthews argued that, in any event, the terms of the LTIP do not unambiguously restrict his recovery.

[ 36 ] By contrast, Ocean focused on defending the exclusion of the LTIP as a matter of contractual interpretation. Ocean submitted that the bonus was not integral to Mr. Matthews' compensation. Furthermore, it submitted that the Paquette framework should not be applied here, or alternatively, that the terms of the LTIP were plain and unambiguous and should be determinative.

[ 37 ] Ocean had little to say on good faith, except to acknowledge that the employer had displayed some "bad conduct" and to assert that there was no finding, at trial or in the majority opinion on appeal, that Ocean had acted in bad faith.

[ 38 ] In these reasons, I seek to explain my view, respectfully stated, that the majority of the Court of Appeal erred in not awarding Mr. Matthews the amount of the LTIP as part of his common law damages for breach of the implied term to provide reasonable notice.

[ 39 ] The first pertains to the proper method of analyzing claims for wrongful dismissal, like that of Mr. Matthews, where the employee alleges a failure to provide reasonable notice as well as bad faith in the manner of dismissal. Specifically, the method of analysis for these two qualitatively different types of breach of contract must be kept properly distinct.

[ 40 ] It is apparent too from the pleadings here that there is a measure of uncertainty as to the impact of Bhasin, not just in Mr. Matthews' case but on employment law more generally. At a minimum, the Court should clarify how Bhasin's organizing principle of good faith manifests in existing employment law.

[ 41 ] The second reason relates to the qualitatively different types of the contractual breaches alleged from the start by Mr. Matthews. This difference was addressed, in some measure, in Keays when the Court confirmed that an award for bad faith in the manner of dismissal is "in addition to" that for failure to provide reasonable notice (Keays, at para. 56). Yet the correct approach in these situations may benefit from further explanation, in particular as to the governing legal principles and the discrete considerations that attend each analysis.

B. The Appropriate Method of Analysis

[ 42 ] Properly understood, the claim pursued here indeed rests on allegations of distinct contractual breaches of Mr. Matthews' employment contract.

[ 43 ] Neither party disputes that, at common law, an employer has the right to terminate the employment contract without cause — or, in this case, prompt the employee to choose to leave their job in circumstances that amount to a dismissal — subject to the duty to provide reasonable notice. The obligation to provide reasonable notice does not, in theory, turn on the presence or absence of good faith. The contractual breach that arises from the employer's choice is simply the failure to provide reasonable notice, which leads to an award of damages in lieu thereof.

[ 44 ] Running parallel to the argument on reasonable notice, Mr. Matthews has alleged that his termination was also in breach of contract because it failed to meet the expected standard of good faith. A breach of the duty to exercise good faith in the manner of dismissal is, as the Court explained in Keays, a distinct contractual breach and is independent of any failure to provide reasonable notice. It can serve as a basis to answer for foreseeable injury that results from callous or insensitive conduct in the manner of dismissal, and the employer's dishonesty, relying on the general duty of honest performance confirmed in Bhasin.

[ 45 ] Importantly, damages arising out of the same dismissal are calculated differently depending on the breach invoked. Again, this is nothing but a reflection of settled law. In Keays, at para. 56, the Court wrote that "an award for conduct in the manner of dismissal is in addition to" the award for failure to provide reasonable notice. This is so precisely because the damages are premised on conceptually different contractual breaches.

[ 46 ] With this in mind, I turn now to examine the duty to provide reasonable notice, which as will become plain, is dispositive of this appeal.

(1) Duty to Provide Reasonable Notice

[ 47 ] In the case at bar, the only disagreement in respect of reasonable notice turns on whether Mr. Matthews' damages include an amount to compensate him for his lost LTIP payment.

[ 48 ] In my respectful view, the majority of the Court of Appeal erred by focusing on whether the terms of the LTIP were "plain and unambiguous" instead of asking what damages were appropriately due for Ocean's failure to provide Mr. Matthews with reasonable notice.

(a) Redress for Breach of the Implied Term to Provide Reasonable Notice of Termination

[ 49 ] Insofar as Mr. Matthews was constructively dismissed without notice, he was entitled to damages representing the salary, including bonuses, he would have earned during the 15-month period (Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701, at para. 82). The question is whether damages for the failure to give reasonable notice include the lost LTIP payment. The answer turns not on whether Mr. Matthews could recover under the LTIP in itself, but on whether the quantum of damages to which he would otherwise be entitled includes an amount to compensate him for his lost LTIP payment.

[ 50 ] In Paquette, the employee participated in his employer's bonus plan, which stipulated that employees had to be "actively employed" on the date of the bonus payout. That language is broadly comparable to the requirement in Mr. Matthews' case that he be employed on a "full-time" basis on the date of the Realization Event.

[ 51 ] The employee's appeal was allowed. The Ontario Court of Appeal relied principally on its prior decision in Taggart v. Canada Life Assurance Co. (2006), 50 C.C.P.B. 163, concerning a similar question under a pension plan. Taggart held that "if a dismissed employee would have received the benefit but for the termination, then the value of that benefit forms part of the damages for wrongful dismissal, unless the plan contains words clearly limiting or removing the employee's right to receive such damages" (para. 42).

[ 52 ] The Court of Appeal in Paquette built upon the approach in Taggart, proposing that courts should take a two-step approach to these questions. First, courts should "consider the [employee's] common law rights and ask whether, but for the termination, would the [employee] have been entitled to the [bonus]?" (Paquette, at para. 29). Second, courts should then ask whether "the terms of the employment agreement or bonus plan [unambiguously] take[] away or limit[] those common law rights" (para. 31).

[ 53 ] I agree with van Rensburg J.A. that this is the appropriate approach. It accords with basic principles of damages for constructive dismissal, anchoring the analysis around reasonable notice. As I have explained, when an employee sues for damages for constructive dismissal, they are claiming for damages as compensation for the income, benefits, and bonuses they would have received had the employer not breached the implied term to provide reasonable notice.

[ 54 ] Moreover, the approach in Paquette respects the well-established understanding that the contract effectively "remains alive" for the purposes of assessing the employee's damages, in order to determine what compensation the employee would have been entitled to but for the dismissal (Sylvester v. British Columbia, [1997] 2 S.C.R. 315, at para. 14). This principle is grounded in how damages for breach of the duty to provide reasonable notice are calculated.

[ 55 ] Courts should accordingly ask two questions when determining whether the appropriate quantum of damages for breach of the implied term to provide reasonable notice includes bonus payments and comparable benefits:

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

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

(b) Application to Mr. Matthews' Case

[ 56 ] The first question is whether Mr. Matthews would have been entitled to the LTIP payment as part of his compensation during the reasonable notice period. Since the Realization Event was triggered during the reasonable notice period — it is uncontested that the Realization Event occurred during the 15-month notice period — Mr. Matthews would have been entitled to the LTIP payment but for his constructive dismissal. He was therefore prima facie entitled to receive damages as compensation for the lost LTIP.

[ 57 ] Ocean argues that Mr. Matthews cannot satisfy the first stage of the analysis. It points this Court to Singer v. Nordstrong Equipment Limited, 2018 ONCA 364, 47 C.C.E.L. (4th) 218, where the Ontario Court of Appeal suggested that courts should examine whether the bonus was an integral part of the employee's compensation. Ocean says that the LTIP was not integral to Mr. Matthews' compensation, and so he should not be entitled to the LTIP as part of his damages.

[ 58 ] The trial judge confronted this submission and concluded that Ocean was attempting to introduce an extra requirement into the analysis that is not supported by the jurisprudence (para. 387). I agree with the trial judge.

[ 59 ] This case is different. The purpose of damages in lieu of reasonable notice is to put the employee in the position they would have been in had they continued to work through to the end of the notice period. The inquiry into whether the bonus was "integral" to the employee's compensation that the Court of Appeal articulated in Singer appears to be derived from Wallace, in which the Court spoke of bonuses that were "integral to [the employee's] compensation package" as an example of damages that might properly be awarded in lieu of reasonable notice (para. 82). I read Wallace to suggest that bonuses that are an integral part of compensation package will, in the ordinary course, be included in damages for wrongful dismissal. But integrality is not an additional precondition for recovery.

[ 60 ] Furthermore, in answer to a question from one of my colleagues at the hearing, counsel for Ocean conceded that Mr. Matthews may well have had an entitlement to the LTIP absent clauses 2.03 and 2.05, on a proper application of the principles of wrongful dismissal.

[ 61 ] On the second step, the question is whether the terms of the LTIP unambiguously limit or remove Mr. Matthews' common law right. It should be mentioned that the parties took opposing positions on the applicable standard of contractual interpretation, Ocean arguing that the provisions need only be clear and unambiguous and Mr. Matthews arguing for the higher standard of Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69.

[ 62 ] I am careful to note that the trial judge did not find that this was a commonly-used standard form agreement. In Ledcor, the Court was tasked with interpreting a standard form agreement common throughout the industry, which was one of the reasons the Court applied correctness review to the lower court's contractual interpretation (paras. 24-27). No comparable argument was made here, and so I proceed on the assumption that the standard of review for the findings of fact about what the parties intended is palpable and overriding error.

[ 63 ] Returning, then, to the main clauses at issue, which provide the following:

2.03 CONDITIONS PRECEDENT:

ONC shall have no obligation under this Agreement to the Employee unless on the date of a Realization Event the Employee is a full-time employee of ONC. For greater certainty, this Agreement shall be of no force and effect if at the time of a Realization Event the Employee is not a full-time employee of ONC, whether as a result of resignation, retirement, termination for cause, termination without cause, or for any other reason. [Emphasis added.]

2.05 GENERAL:

The Long Term Value Creation Bonus Plan does not have any current or future value other than on the date of a Realization Event and shall not be calculated as part of the Employee's compensation for any purpose including severance pay or any other amount paid to the employee on termination. [Emphasis added.]

[ 64 ] The question is not whether these terms are ambiguous but whether the wording of the plan unambiguously limits or removes the employee's common law rights (Paquette, at para. 31, citing Taggart, at para. 42). I conclude that it does not.

[ 65 ] To this end, the provisions of the agreement must be absolutely clear and unambiguous. So, language requiring an employee to be "full-time" or "active", such as clause 2.03, will not suffice to limit or remove the employee's common law right to damages where, as here, the Realization Event occurred during the reasonable notice period. During a reasonable notice period, the contract is effectively alive for the purpose of calculating wrongful dismissal damages, and so Mr. Matthews is treated as if he were a full-time employee until the end of the notice period. Clause 2.03 uses the words "termination without cause", which would ordinarily include constructive dismissal. But it is not unambiguous as regards an employee's common law right in the context of a wrongful dismissal claim, since the rights of the employee during the notice period are protected by a principle entirely different from anything in the LTIP.

[ 66 ] Similarly, where a clause purports to remove an employee's common law right to damages upon termination "with or without cause", such as clause 2.03, this language will not suffice. Here, Mr. Matthews is not seeking to recover under the LTIP per se; he is seeking damages for the wrongful dismissal that include lost LTIP income as part of the quantum. In this context, a clause that says the LTIP will be void if the employee is not employed "with or without cause" does not unambiguously address the employee's separate common law right to damages for wrongful dismissal.

[ 67 ] I therefore agree with the trial judge that clause 2.03 does not unambiguously limit or remove Mr. Matthews' common law right. In my respectful view, the majority of the Court of Appeal erred in treating clause 2.03 as though it were obvious and unequivocal that it removed the claim for damages.

[ 68 ] As mentioned, it is true that the trial judge did not expressly consider clause 2.05. The dissenting judge suggested this clause only prevents Mr. Matthews from seeking the bonus as part of his severance pay. The majority judges, in turn, suggest that clause 2.05 clearly states that the LTIP cannot be used for "any amount paid to the employee on termination", including for the purposes of calculating damages for wrongful dismissal.

[ 69 ] I respectfully disagree with the majority of the Court of Appeal on this point. The trial judge did not use the LTIP to calculate severance; rather, he determined the quantum of damages that Mr. Matthews was entitled to receive for the constructive dismissal. Damages for constructive dismissal are distinct from severance. In awarding damages, the trial judge did not contradict clause 2.05 — there was no calculation of the LTIP "as part of the Employee's compensation" but rather an award of damages flowing from Ocean's breach of the employment contract.

[ 70 ] Moreover, clause 2.05 must be read as a whole; it also states that the LTIP "does not have any current or future value other than on the date of a Realization Event". If Mr. Matthews had been properly noticed, he would have been employed on the date of the Realization Event. So at a minimum, clause 2.05 preserves for Mr. Matthews the "value" of the LTIP "on the date of a Realization Event", which was triggered during the notice period. Given this, clause 2.05 also does not unambiguously limit or remove Mr. Matthews' common law right.

[ 71 ] In reaching a different conclusion regarding the interpretation of clauses 2.03 and 2.05, the majority judges relied on Styles from the Court of Appeal of Alberta. Ocean urges this Court to do the same. For the following reasons, I decline to do so and would prefer the Ontario Court of Appeal's approach in Paquette.

[ 72 ] At issue in Styles was a similar question to the one here: was the employee, upon being terminated without cause, entitled to receive a payment under his employer's contractual long-term incentive compensation plan? The Court of Appeal of Alberta concluded that he was not, on the basis that the terms of the plan, which restricted payment upon the employee's cessation of employment for any reason, were sufficiently clear and unambiguous to bar the claim for wrongful dismissal damages.

[ 73 ] It also bears noting that the Court of Appeal of Alberta in Styles suggested that Paquette, one of the cases I rely on here, is premised upon an erroneous reading of this Court's decision in Sylvester. I do not share this view, and I accordingly decline to endorse Styles.

[ 74 ] On my reading, this Court in Sylvester confirmed that "[d]amages for wrongful dismissal are designed to compensate the employee for the breach by the employer of the implied term in the employment contract to provide reasonable notice of termination. There is no such implied term of the contract to provide payment in lieu. The payment in lieu is not damages for a breach of the contract, but rather one component of the compensation provided for in the contract. If an employer fails to give proper notice or pay in lieu, the breach is in the failure to pay, not in the termination" (para. 14). This explains the principle that for the purposes of calculating damages for wrongful dismissal, the contract effectively "remains alive" during the reasonable notice period.

[ 75 ] As explained by the Court of Appeal for British Columbia in Dunlop v. B.C. Hydro & Power Authority (1988), 32 B.C.L.R. (2d) 334, at pp. 338‑39, there are three principles on which liability for wrongful dismissal rests: (1) the employee was entitled to notice; (2) the employee was entitled to treat the breach of the duty to give notice as a wrongful act; and (3) the employer had an obligation to pay damages for that wrongful act. Paquette and Taggart respect these principles by first asking whether the employee would have been entitled to the bonus during the notice period (addressing principles (1) and (2)) and then by asking whether the employer's contractual terms unambiguously limit or remove those common law rights (addressing principle (3)).

[ 76 ] Finally, at this stage of the analysis, it may also be appropriate in certain cases to examine whether the clauses purporting to limit or take away an employee's common law right were adequately brought to the employee's attention and were part of the employee's agreement with the employer (see Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986, at pp. 998-1000). I note that this consideration was not raised by the parties, and I make no findings on it.

[ 77 ] In sum, I agree with the trial judge that Mr. Matthews is entitled to receive damages equal to what he would have received pursuant to the LTIP, subject to mitigation.

(2) Good Faith

[ 78 ] Again, and I say so respectfully, the parties' arguments on good faith were confounding when placed side by side. Mr. Matthews focused largely on the duty of honest performance, and confirmed at the hearing that his claim for good faith damages is predicated on the general duty of honest performance articulated in Bhasin, applied to the employment relationship, rather than on the narrower duty of good faith in the manner of dismissal described in Wallace and Keays. While Ocean acknowledged some "bad conduct", it denied that there was any finding of bad faith.

[ 79 ] Ocean is no doubt correct on this very last point. That said, and contrary to the succinct conclusion of the majority judges in the Court of Appeal, I share Mr. Matthews' view that the trial judge's findings on the facts support a broader analysis. The trial judge made clear findings of dishonesty. He found that Mr. Matthews' supervisor, Mr. Emond, lied to Mr. Matthews about his status in the company and prospects with Ocean. The trial judge was damning in his assessment: "Emond's lies extended, in my view, to deliberately misleading Matthews about the LTIP" (para. 212). He found that Ocean allowed its "rogue manager" to lie to Mr. Matthews for his own purposes (para. 218).

[ 80 ] The trial judge did not, however, explicitly find a breach of contract resulting from this dishonesty. He did not speak to the duty of honest performance, likely because — given that the original claim was for wrongful dismissal and oppression — he found the issue of the LTIP to be resolved on the basis of reasonable notice.

[ 81 ] On this latter point, I would take this opportunity to recall that, had the issue been properly placed before the trial judge, it was certainly within the trial judge's prerogative to tie the dishonesty of Ocean's senior manager to a breach of the duty of honest performance, one of the manifestations of the organizing principle of good faith in Bhasin.

[ 82 ] In recognizing this, Potter affirmed what courts were already doing: examining the employment relationship retrospectively, and thus implicitly finding that good faith is owed not merely at the time of termination but throughout the whole of the employment relationship.

[ 83 ] I would not, however, say anything further on how Bhasin, on the one hand, and Wallace and Keays, on the other, apply to this case. It suffices to say that a contractual breach of good faith rests on a wholly distinct basis from that relating to the failure to provide reasonable notice. Having resolved this appeal on the basis of reasonable notice, there is no reason to venture further into the issue of good faith.

[ 84 ] Further, I note that Mr. Matthews and several interveners argue that the general organizing principle of good faith described in Bhasin manifests itself in various ways throughout the whole of the employment relationship — in the negotiation of the employment contract, its performance, and its termination — and that this Court should say more about how good faith applies to employment contracts generally.

[ 85 ] Mr. Matthews' argument is a serious one. Not all mistreatment by an employer will result in a constructive dismissal — some employees, for financial or other reasons, might choose not to leave despite serious mistreatment. The question of whether an employer's dishonesty in the performance of the employment contract constitutes an independent wrong — actionable as such and even in circumstances where it does not rise to the level of constructive dismissal — is an important question for employment law.

[ 86 ] This is a dismissal case. In light of the comment in Bhasin (at para. 40) that the common law should develop in an incremental fashion, I would decline to decide whether a broader duty exists in employment law at large, outside the context of dismissal. The issue was not fully developed in argument, and my saying nothing more about it should not be understood as an endorsement or rejection of the views of any party or intervener about the scope of the good faith principle in Bhasin in the employment relationship.

[ 87 ] Lastly, I recall that in his original application, Mr. Matthews sought a declaration that the termination of his employment reflected conduct on the part of Ocean that was oppressive and unfair within the meaning of the Canada Business Corporation Act. The trial judge had declined to address this given his ruling on the LTIP. I have decided this appeal on the basis of reasonable notice, leaving the issue of oppression unaddressed.

[ 88 ] Regrettably, Mr. Matthews gave no explanation as to what basis this Court would make a formal declaration in these circumstances. I would refrain from making a declaration of a contractual breach on appeal, where the issue was not expressly raised before or decided by the trial judge as part of his reasons.

V. Conclusion

[ 89 ] For the foregoing reasons, I would allow the appeal, set aside the judgment of the Court of Appeal and restore the judgment of the Supreme Court of Nova Scotia, with costs throughout.

Appeal allowed with costs throughout.

Solicitors

Solicitors for the appellant: Levitt, Toronto; Mitchell & Ferguson, Associates, Halifax.

Solicitors for the respondent: Barteaux Durnford, Halifax.

Solicitors for the intervener the Canadian Association for Non‑Organized Employees: Ball Professional Corporation, Toronto; CSuite Law, Toronto; SJO Legal Professional Corporation, Toronto.

Solicitors for the intervener Don Valley Community Legal Services: Monkhouse Law, Toronto.

Solicitors for the intervener the Law Students' Legal Advice Program: Tevlin Gleadle Curtis Employment Law Strategies, Vancouver.

Solicitors for the intervener the Canadian Association of Counsel to Employers: McCarthy Tétrault, Toronto.

Solicitors for the intervener Parkdale Community Legal Services: Nelligan O'Brien Payne, Ottawa; Parkdale Community Legal Services, Toronto.

Footnotes

[^1]: The term "aggravated damages" was used on occasion by the two parties throughout this appeal. I note, however, that in Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3, the Court reconsidered the use of this term and held that what may have been called "aggravated damages" in employment law are in fact compensatory damages for mental distress. The term "aggravated damages" should no longer be used to describe this remedy.

[^2]: K. Banks, "Progress and Paradox: The Remarkable yet Limited Advance of Employer Good Faith Duties in Canadian Common Law" (2011), 32 Comp. Lab. L. & Pol'y J. 547, at pp. 561-62.

[^3]: See D. D. Buchanan, "Defining Wrongful Dismissal: The Alberta Schism" (2019), 57 Alta. L. Rev. 95.

[^4]: See C. Mummé, "Bhasin v. Hrynew: A New Era for Good Faith in Canadian Employment Law, or Just Tinkering at the Margins?" (2016), 32 Int'l J. Comp. Lab. L. & Ind. Rel. 117, at p. 122.