Court File and Parties
COURT FILE NO.: CV-11-441182 DATE: 20120416
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: STEVEN SOMERVILLE, Plaintiff/Moving Party AND: BANK OF MONTREAL, Defendant/Responding Party
BEFORE: Stinson J.
COUNSEL: Robert L. Colson and Kimberly Boara Alexander, for the plaintiff/moving party Matthew Latella and A. Shafey, for the defendant/responding party
HEARD: March 29, 2012
ENDORSEMENT
Background
1The issue raised on this motion for summary judgment is a narrow one. The plaintiff, a former executive, resigned his employment with the defendant bank on November 4, 2011. He asserts he was constructively dismissed. He has commenced an action seeking damages for wrongful dismissal.
2The plaintiff's compensation with the bank included a base salary of $200,000 plus incentive based compensation (a "Bonus"). The Bonus was calculated in accordance with applicable policies of the bank in respect of the relevant fiscal year (ending October 31), and was ordinarily paid to the plaintiff in December or January of the following fiscal year.
3The bank did not pay the plaintiff anything in respect of his fiscal 2011 Bonus after he left the bank's employ. As a result, the plaintiff included in his statement of claim a claim for payment of the 2011 Bonus, in addition to his claim for damages for wrongful dismissal.
4Following service of the statement of claim, and before receipt of the statement of defence, the plaintiff served a motion for summary judgment in respect of his unpaid 2011 Bonus. As a result of subsequent negotiations, the parties agreed that the proper calculation of the plaintiff's Bonus for fiscal 2011 was $1,478,864, and the bank acknowledged the plaintiff's entitlement to a Bonus in that amount. The parties disagreed, however, as to the manner in which the Bonus may be paid.
The Restricted Share Unit Plan
5In the past, pursuant to the terms of the plaintiff's employment agreement with the bank and established practice, two-thirds of the plaintiff's annual Bonus was paid in cash. The remaining one-third, however, was paid in the form of compensation known as "restricted share units" or "RSUs". RSUs are a notional bookkeeping compensation system governed by a formal bank document entitled the "Omnibus Restricted Share Unit Plan" dated September 21, 2008 (the "Plan").
6The concept behind the Plan is that each participating employee has a notional "account" maintained in the bank's internal records. When the employee receives bonus compensation within the scope of the Plan, his or her account is notionally credited with RSUs equivalent to the number of common shares of the bank that could be purchased at the prevailing share price for an amount of money equivalent to that portion of the bonus payment falling within the scope of the Plan. By way of example, assuming an employee is entitled to a bonus of $300,000, that employee would receive a cash payment of $200,000. The employee's RSU account would be credited with a notional number of Bank of Montreal shares equivalent to the number of common shares that could be purchased at that time using the remainder of the bonus, namely, $100,000.
7The Plan further provides that employees can subsequently "cash in" their RSUs, subject to certain limits. The value of the RSUs at the time of withdrawal is based on the then-market price of the common shares of the defendant. There are also time restrictions on how quickly such withdrawals may be effected. In essence, in relation to RSUs paid as part of the bonus for any particular year, an employee must wait one year before cashing in one-third of the RSUs; two years before cashing in the next one-third; and three years before cashing in the final one-third.
8It is common ground that in the past the plaintiff received his Bonus by way of cash as to two-thirds, and by way of RSUs as to the remaining one-third, for each fiscal year.
9As noted previously, the parties agree that the correct calculation of the plaintiff's Bonus for fiscal 2011 is $1,478,864. Following service of the motion for summary judgment and six days prior to its argument, the bank paid the plaintiff two-thirds of the bonus ($985,909.33) in cash, less applicable statutory deductions and withholdings. The bank informs the court that it intends, as per its policies and practices, to award the plaintiff the remaining one-third of his bonus – $495,954.67 – as RSUs.
The Issue
10The narrow issue argued before me is whether, in view of the bank's acknowledgement that the plaintiff's fiscal 2011 Bonus is $1,478,864 and in light of the fact that the plaintiff is no longer employed by the defendant, is it open to the bank to pay the remaining one-third of the bonus by way of a grant of RSUs with a value of $495,954.67 or whether, instead, the plaintiff is entitled to insist on payment of that sum now, in cash. Put another way, having regard to the terms of his employment contract and the terms of the Plan, can the plaintiff insist that his full 2011 Bonus be paid in cash or may the bank meet its obligations to him by paying only two-thirds in cash and the remaining one-third by way of RSUs?
11Both parties agree that there is no statutory, regulatory or securities law-based reason that would apply to prevent the bank from granting RSUs to a non-employee. The plaintiff contends, however, that the terms of the Plan do not permit the bank to do so. By contrast, the bank submits that there is nothing in the Plan that prohibits it from paying compensation to a former employee in this fashion. The bank further submits that, because this was the manner in which the plaintiff's bonus was paid in the past as part of his agreed-upon overall compensation arrangements, and because there is no prohibition either in the Plan or elsewhere that prevents it from doing so, the defendant is entitled to pay the balance of the bonus in this fashion. The defendant further contends that nothing in the plaintiff's compensation agreement or otherwise entitles the plaintiff to force the bank to pay the remaining one-third of his fiscal 2011 bonus in cash.
12Both sides agree that the question before me turns on the interpretation of clause 4.3 of the Plan. For ease of reference, I will set out of the relevant language found there:
4.3 Termination Without Cause
If the employment of a Participating Employee is terminated without Cause by the Bank or an Affiliate of the Bank before all of the Restricted Share Units credited to the Participating Employee's accounts have become payable or are forfeited or cancelled pursuant to any other provision of the Plan, such Participating Employee shall be deemed to continue to be a Participating Employee for purposes of the Plan but shall not be entitled to participate in any further grant of Restricted Share Units under Sections 3.3 or 3.4 from and after the date of such termination. …
[Emphasis added.]
Analysis
13Before proceeding with my analysis of the contractual interpretation point, I should record that I am expressly not determining in this ruling whether or not the employment of the plaintiff was "terminated without Cause". The plaintiff's position (disputed by the bank) is that the events leading up to his resignation on November 4, 2011 amounted to a constructive dismissal and thus his employment was terminated without cause. Before me counsel for the bank submitted (and I agreed) that the record on this summary judgment motion is inadequate and the lawsuit is at too early a stage for the issue of cause to be determined on this motion. Despite that fact, what the plaintiff's motion asked and what both parties agreed the court should decide is whether the plaintiff is entitled to require the remaining one-third of his 2011 bonus be paid to him in cash or whether the bank may do so by means of an allocation of an equivalent value of RSUs.
14Interestingly enough, both sides point to the underlined words in clause 4.3 as supportive of their position. The plaintiff submits that the bank's own Plan makes it plain that former employees may no longer participate in the Plan and thus the bank can no longer discharge its obligation to pay the remainder of the 2011 Bonus by way of RSUs. That being the case, the argument continues, payment must be made in cash.
15The bank submits that the emphasized words do not contain any language that prohibits the bank from allocating RSUs as it considers appropriate. What the emphasized words do restrict, however, is the ability of a former employee to whom the words apply from requiring the bank to grant RSUs to him or her; there is no prohibition against the bank doing so at its option.
16In my view, the interpretation for which the defendant contends is the proper one. I reach this conclusion for several reasons, as follows:
(a) Neither the Plan language nor any other applicable law expressly prohibits the bank from distributing RSUs. The plain and ordinary meaning of the emphasized words is a restriction on the entitlement of the employee, not the rights of the bank.
(b) The expectations of both parties, as reflected in the employment documents confirmed by the plaintiff, was that one-third of his Bonus would be paid in RSUs. The interpretation I adopt is consistent with those expectations.
(c) The interpretation for which the plaintiff contends would place him in an enhanced position with a potentially higher level of compensation than had he remained in the employ of the defendant. RSUs are not "cashable" for a period of one, two, or three years and then based on the prevailing price of the bank's common shares. Thus, the plaintiff's original expectation would be to receive funds at a future date, and at that funds that were linked to the market performance of the bank's shares. In lieu of that, the plaintiff now seeks cash "up front" in a fixed amount. Proceeding (as we are in this motion) on the assumption that the fiscal 2011 Bonus is due to the plaintiff, it does not follow that he should be placed in a better position as a former employee who can require cash to be paid now than he would be had he continued his employment with the bank, in which event his receipt of actual funds would be delayed for one, two, and three years.
(d) The interpretation for which the plaintiff contends would read into the language of the Plan a prohibition against distribution of RSUs by the bank that is neither found expressly or implicitly in the Plan nor anywhere else as a matter of law.
(e) To require the bank to pay cash to the plaintiff now would be to require it to compensate the plaintiff (i) in a fashion that was not contemplated by the parties' employment agreement, and (ii) for a sum certain now that may or may not be equivalent to the cash value of the RSUs when they come to be paid out in money.
(f) The RSUs themselves carry with them certain restrictions (such as non-solicitation obligations) that were part of the basis upon which the bank agreed to provide them as part of the plaintiff's incentive compensation. To require the bank to pay the cash equivalent "up front" would be to ignore those limitations and restrictions, which again is something to which the plaintiff is not entitled.
Conclusion
17For these reasons, I conclude that the plaintiff is not entitled to require the defendant to pay the remaining one-third of his fiscal 2011 Bonus in cash. Rather, I hold that the bank may discharge the commitment it made to pay the plaintiff his 2011 Bonus by way of a cash payment of $985,909.33 plus statutory deductions and withholdings, and by crediting to him RSUs with a maximum aggregate value of $492,934.67 in accordance with and subject to the terms of the RSU Plan.
Costs
18In relation to costs, if the parties cannot agree, they may make written submissions as follows:
(a) The defendant shall serve its bills of costs on the plaintiff, accompanied by written submissions within fifteen days of the release of these reasons.
(b) The plaintiff shall serve his response to the defendant within fifteen days thereafter.
(c) The defendant shall serve its reply, if any, within ten days thereafter.
(d) In all cases, the written submissions shall be limited to three pages, plus bills of costs.
(e) These submissions shall address liability and quantum for both the motion for summary judgment and the motion to set aside the noting in default.
(f) I direct that counsel for the plaintiff shall collect copies of all parties' submissions and arrange to have that package delivered to me in care of Judges' Administration, Room 170 at 361 University as soon as the final exchange of materials has been completed. To be clear, no materials should be filed individually: rather, counsel for the plaintiff will assemble a single package for delivery as described above.
Stinson J.
Date: April 16, 2012