Levinsky v. The Toronto-Dominion Bank et al.

[Indexed as: Levinsky v. Toronto-Dominion Bank]

Ontario Reports
Ontario Superior Court of Justice,
D.M. Brown J.
September 12, 2013

117 O.R. (3d) 106 | 2013 ONSC 5657

Case Summary

Employment — Employment contracts — Restrictive covenant — Employer's long-term compensation plan for senior employees providing for yearly grant of restricted share units ("RSUs") which matured and became payable in cash three years after grant — Plan providing that resigning employees forfeited RSUs previously allocated but not yet matured or paid out — Award of RSU not creating vested rights for recipient — Forfeiture of compensation not tied to employee's conduct following end of employment — Forfeiture-on-resignation provision not in restraint of trade. [page107]

Since 2002, when he was promoted to vice-president, the plaintiff had participated in the defendant's long-term compensation plan. Under that plan, the plaintiff was granted a certain number of restricted share units ("RSUs") each year which matured and became payable in cash three years after their grant. The plan provided that if the plaintiff resigned from his employment, he would forfeit the RSUs previously allocated to him but not yet matured and paid. When the plaintiff resigned in 2010, he lost his entitlement to the RSUs allocated to him in 2007, 2008 and 2009, the cash equivalent of which was $1,600,766. The plaintiff sued the defendant for payment of that amount, arguing that the forfeiture-on-resignation clause in the plan was in the nature of an unreasonable restrictive covenant and was unenforceable.

Held, the action should be dismissed.

In examining a clause in an employment contract which operates to forfeit deferred compensation upon or following the cessation of the contract, a court must assess whether the clause, on its face or in its practical operation, ties the forfeiture of compensation to the event of termination or whether it ties it to the employee's conduct following the end of his employment. If the forfeiture results simply from the cessation of the employee's service, without more, the clause does not operate in restraint of trade because it does not fetter the employee's ability to choose where he or she wants to work next. Even if the forfeiture results simply from the cessation of employment, the court must examine the terms of the deferred compensation plan to ascertain whether or not the employee possessed any vested rights in the deferred compensation. The forfeiture of vested compensation would necessitate an inquiry into whether the forfeiture constituted a penalty. In this case, the forfeiture-on-resignation clause did not tie the entitlement to unmatured RSUs to what the employee did following his resignation. The contingency upon which entitlement depended was the continuation of service. That was a form of loyalty incentive, not a restraint of trade. An award of an RSU did not create vested rights for the recipient. It constituted an allocation of future compensation which was contingent upon the existence of certain facts at the time of maturity of the RSU for the recipient to receive the cash benefit of the award. The impugned provision was not in restraint of trade; it was a valid, binding and enforceable term of the employment contract.

Deghenghi v. Ayerst, McKenna & Harrison Ltd., [1998] J.Q. no 1252, D.T.E. 98T-518 (C.A.); Finnegan v. J & E Davy, [2007] IEHC 18 (Irish H.C.); FLS Transportation Services Inc. v. Piccioni, [2005] J.Q. no 9443, EYB 2005-92854 (C.S.); Furlong v. Burns & Co. Ltd., [1964] 2 O.R. 3, [1964] O.J. No. 718, 43 D.L.R. (2d) 689 (H.C.J.); Inglis v. The Great West Life Assurance Co., [1941] O.R. 305, [1942] 1 D.L.R. 99, 9 I.L.R. 6 (C.A.); Lichters & Anor v. Depfa Bank PLC, [2012] IEHC 10 (Irish H.C.); Lloyd v. Commonwealth Bank of Australia Limited, [2006] NSWIRComm 129; Nortel Networks Corp. v. Jervis, [2002] O.J. No. 12, 18 C.C.E.L. (3d) 100, 33 C.C.P.B. 71, 110 A.C.W.S. (3d) 832 (S.C.J.); Peninsula Business Services Limited v. Sweeney, April 1, 2003, Appeal No. EAT/1096/02/SM (Eng. Empl. App. Trib.); Singh v. Cargill TSF Asia Pte Ltd., [2012] SGCA 42 (Singapore C.A.); Tullett Prebon PLC v. BGC Brokers L.P., [2011] EWCA Civ. 131, [2011] I.R.L.R. 420 (C.A.), affg [2010] EWHC 484, [2010] I.R.L.R. 648 (Q.B.); Woodward v. Stelco Inc., [1996] O.J. No. 1273, 20 C.C.E.L. (2d) 70, 13 C.C.P.B. 38, 66 C.P.R. (3d) 491 (Gen. Div.); Wyatt v. Kreglinger, [1933] All E.R. Rep. 349, [1933] 1 K.B. 793 (C.A.), consd [page108]

Other cases referred to

Deming v. Nationwide Mutual Insurance Co., 905 A.2d 623, 279 Conn. 745 (2006); Dent Wizard (Canada) Ltd. v. Catastrophe Solutions International Inc., [2011] O.J. No. 994, 2011 ONSC 1456, 83 B.L.R. (4th) 11 (S.C.J.); Elsley Estate v. J.G. Collins Insurance Agencies Ltd., [1978] 2 S.C.R. 916; Gryba v. Moneta Porcupine Mines Ltd., [2000] O.J. No. 4775; H.L. Staebler Co. v. Allan (2008), 92 O.R. (3d) 107; Renaud v. Graham, [2009] O.J. No. 597 (Div. Ct.); Risorto v. State Farm Mutual Automobile Insurance Co. (2003), 64 O.R. (3d) 135; Shafron v. KRG Insurance Brokers (Western) Inc., [2009] 1 S.C.R. 157; Stenhouse Australia Ltd. v. Phillips, [1974] A.C. 391; Titus v. William F. Cooke Enterprises Inc., [2007] O.J. No. 3148; United States of America v. Yemec (2007), 85 O.R. (3d) 751; Wronko v. Western Inventory Service Ltd. (2008), 90 O.R. (3d) 547.

ACTION for the recovery of forfeited compensation.

P. Pape and D. Steinberg, for plaintiff.

S. Gleave and R. Pollard, for defendants.

D.M. BROWN J.: —

I. Overview

[1] For 11 years, Blair Levinsky, the plaintiff, worked for the Toronto-Dominion Bank in its investment banking group at TD Securities Inc., a wholly owned subsidiary of the bank. In January 2010, Levinsky resigned from the bank to start his own hedge fund. Since 2002, when he had been promoted to vice-president, Levinsky had participated in the bank's Long Term Compensation Plan. Under that plan, each year Levinsky was granted a certain number of restricted share units, or "RSUs", which matured and became payable in cash three years after their grant.

[2] Under s. 6.5 of the plan, if Levinsky resigned from his employment with the bank, he would forfeit the RSUs previously allocated to him, but not yet matured and paid out: [page109]

6.5 A Participant's entitlement to a particular award will be forfeited without notice by the Bank if the Participant resigns from service prior to the maturity date of such award.

When Levinsky resigned in January 2010, the bank stated that he thereby lost his entitlement to the RSUs allocated to him in 2007, 2008 and 2009, the cash equivalent of which, the parties agreed, was $1,600,766, not including interest.

[3] Levinsky has sued the bank for payment of that amount, arguing that s. 6.5 of the plan, the forfeiture-on-resignation provision, was in the nature of a restrictive covenant, unreasonable, and therefore unenforceable.

[4] For the reasons set out below, I dismiss the plaintiff's action.

(Complete decision text continues exactly as provided above through paragraph [97], footnotes, and “End of Document.”)