Court File and Parties

Court File No.: CV-11-442786
Date: 2012-10-02
Superior Court of Justice - Ontario

Re: Blair Levinsky, Applicant

And: The Toronto-Dominion Bank and TD Securities Inc., Respondents

Before: Pollak J.

Counsel:
Paul J. Pape/David S. Steinberg , for the Applicant
Stephen F. Gleave/Richelle M. Pollard , for the Respondents

Heard: September 10, 2012

Endorsement

[ 1 ] In this Application, Blair Levinsky (“Mr. Levinsky”) claims for payment of outstanding bonuses in the amount of $174,708 from his former employer, Toronto-Dominion Bank (the “Bank”). He also claims interest and punitive damages against the Bank.

[ 2 ] The Application is made pursuant to Rule 14.05(3)(d) and (h). Subparagraphs (d) and (h) provide:

A proceeding may be brought by application where these rules authorize the commencement of a proceeding by application or where the relief claimed is,

(d) the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order in council, regulation or municipal by-law or resolution; [or]

(h) in respect of any matter where it is unlikely that there will be any material facts in dispute.

[ 3 ] When Mr. Levinsky resigned his employment he requested payment of withheld bonuses. The Bank denied any liability to pay the withheld bonuses because his resignation had triggered a forfeiture of his rights to the bonuses.

[ 4 ] The Bank relies on the terms of the “Restricted Share Unit (“RSU”) Plan” (the “Plan”) which formed part of Mr. Levinsky’s employment agreement. The Bank submits that the purpose of the Plan is to provide “additional” compensation in order to create “incentives” for employee retention. The Plan provides that RSUs do not “fully vest” until three years after they have been allocated and that an employee forfeits his unvested RSUs if he resigns before this date.

[ 5 ] The parties agree that had Mr. Levinsky continued working for the Bank, he would have continued to receive payments for his maturing share units. If he had retired 3.5 years later, the retirement provisions of the Plan would have permitted him to keep his unvested RSUs.

[ 6 ] Upon being promoted to Vice-President, there was a change to Mr. Levinsky’s compensation and his employment terms, which included the introduction of the Plan to these terms. At this time, he also began signing annual Participation Agreements for seven years which provided that he agreed to and understood the terms of the Plan.

[ 7 ] The Bank submits that by executing the Participation Agreements, and by participating in the Plan, Mr. Levinsky accepted the change to his compensation and the new employment terms. Mr. Levinsky did not object to any changes in his compensation during those seven years. The Bank submits that Mr. Levinsky could have rejected changes to his employment terms and sought a claim for constructive dismissal, but he did not do so.

[ 8 ] The Bank also submits that as a Managing Director earning millions of dollars, Mr. Levinsky was sophisticated and knew that he would give up his unvested RSUs if he resigned.

[ 9 ] Mr. Levinsky argues that the forfeiture provision of the Plan is a restrictive covenant which unreasonably restrains Mr. Levinsky’s mobility and limits his ability to work and compete and therefore should not be enforced by this Court. Mr. Levinsky’s alternative argument is that if the Plan forms part of his employment contract, the Plan is unconscionable as it forces him to surrender his unvested RSUs.

[ 10 ] Mr. Levinsky submits that he was effectively forced to agree to the contractual provision relied on by the Bank. Therefore, he argues, enforcing the provision would be highly unfair and would permit the Bank to do indirectly what the law prohibits it from doing directly: unreasonably restrain trade and employee mobility. He submits that the stated purposes of the Plan—“employee retention” and “alignment”—are really a suppression of employee free will and restraint of trade. The Bank, on the other hand, submits that the purpose of the Plan is not to restrict employee mobility but to “incentivize” employee “retention” and align the interests of employees and shareholders.

[ 11 ] Mr. Levinsky argues that as the forfeiture provisions of the Plan are restrictive covenants, the Bank has the burden of proving to the Court that these provisions are reasonable and should be enforced.

[ 12 ] Further, Mr. Levinsky submits that the provision should not be sanctioned by this Court as it is punitive and leads to an unconscionable result. He submits that since the Bank does not argue that the forfeiture of $1,750,000 is liquidated damages to compensate the Bank for Mr. Levinsky’s departure, the only reasonable inference to be drawn is that the forfeiture provisions were designed to penalize employees like Mr. Levinsky who leave the Bank to work elsewhere.

[ 13 ] Mr. Levinsky relies on the inclusion of a “Non-Competition” clause in the Plan to support his arguments that the purpose and effect of the Plan is to penalize employees and to restrain competition.

[ 14 ] He also submits that in the context of employment law, the Court must be particularly vigilant in protecting employees against unreasonably punitive provisions and regulations.

[ 15 ] The parties rely on jurisprudence which sets out factors to determine whether a particular provision in a contract is in restraint of trade and if so, whether it should be enforced. Mr. Levinsky relies on the criteria established by the Court of Appeal in H.L. Staebler Co. v. Allan , 2008 ONCA 576 , [2008] O.J. No. 3048 as the test to determine if the alleged restraint of trade is justified. At paragraph 36, the Court held that:

Reasonableness is the mechanism by which a court decides whether a covenant is “overly broad” or is only that which is reasonably required for the employer’s protection. But how is a court to determine whether any given restrictive covenant is “reasonable”? Elsley offers a framework for making such a determination. The starting point is “an overall assessment of the clause, the agreement within which it is found, and all of the surrounding circumstances”. Thereafter, three factors must be considered. First, did the employer have a proprietary interest entitled to protection? Second, are the temporal or spatial features of the covenant too broad? And, third, is the covenant unenforceable as being against competition generally, and not limited to proscribing solicitation of clients of the former employer?

[ 16 ] However, Mr. Levinsky has not provided the appropriate evidence necessary for this Court to apply the law and determine whether or not the provision in dispute is in restraint of trade, and if so, if it is justifiable.

[ 17 ] I am of the opinion that, having regard to the issues to be determined as a result of the arguments raised, Mr. Levinsky’s claim is not properly brought by way of Application.

[ 18 ] Counsel for Mr. Levinsky requested the opportunity to make further submissions on the appropriate procedure to follow in the event that I find that the matter should continue as a trial. Mr. Levinsky is therefore directed to schedule an appearance in Motion Scheduling Court (in consultation with counsel for the Bank) within one month of these reasons, in order to schedule a continuation of this Application before me, for the purpose of hearing submissions on the procedure to be followed to continue these proceedings by way of a trial. Mr. Levinsky’s counsel should advise my assistant Pat through Judges’ Administration at 416-327-5284, of the date the parties have chosen for such of the appearance in Motion Scheduling Court.

Costs

[ 19 ] The parties have agreed that a reasonable amount for costs of this motion, on a partial indemnity basis, is $85,000. Failing the agreement of the parties, submissions may be made on costs by the Defendant for October 16, 2012 and by the Plaintiff for October 30, 2012.

Pollak J.
Date: October 2, 2012