Court File and Parties
COURT FILE NO.: CV-19-618604 DATE: 2022/07/04
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: John (Jack) Maynard, Plaintiff AND: Johnson Controls Canada LP, Defendant
BEFORE: Regional Senior Justice Calum MacLeod
COUNSEL: Natalie MacDonald & Chris Randall, for the Plaintiff (Moving Party) Laura Brazil & Reuben Rothstein, for the Defendant (Responding Party)
HEARD: April 5, 2022
DECISION AND REASONS
[1] This is a summary judgment motion in an employment case. Both parties agree that summary judgment is an appropriate way to dispose of the issues and as such it proceeds under Rule 20.04 (2) (b).[^1] Needless to say, the parties’ views on the appropriate outcome are quite different. The plaintiff seeks judgment in his favour whereas the defendant seeks the dismissal of the action.
Background
[2] The facts are not substantially in dispute. The plaintiff was employed by the defendant from March of 2004 until he was terminated without cause in June of 2018. At the time of his dismissal, he was the most senior employee in Canada.
[3] It is also common ground that when the plaintiff was promoted in 2014 during a restructuring of the company, his remuneration plan was altered. His compensation thereafter and up until the date of termination consisted of base salary, benefits, and a bonus and incentive plan distributed in the form of Restricted Stock Units or “RSUs”. RSUs are a form of delayed bonus which eventually become freely trading shares of the corporation once they “vest”.
[4] At the time of his dismissal, the plaintiff’s compensation consisted of base salary of $203,000.00 per year, participation in the benefit plan and the RSUs. In 2017, the value of the RSUs he received was approximately $60,000.00 U.S. or, according to the applicant’s affidavit, approximately $76,000.00 Canadian.
[5] It is undisputed that the plaintiff’s employment contract contained the following termination provision:
JCCLP may terminate your employment anytime without cause, by providing you with only the accrued wages and vacation pay owing to you and subject only to any minimum entitlements to notice of termination (or termination pay in lieu of notice) and severance pay (if any) as may be required by applicable employment standards laws. Furthermore, during the applicable provincial employment standards statutory notice of termination period only, JCCLP shall be required to comply with the applicable employment standards legislation requirements relating to your benefit plans. For greater certainty, JCCLP shall not be required to continue any benefits coverage after the end of the applicable provincial employment standards statutory notice of termination period, except in accordance with this Annex A. Your employee share of contributions to such benefit plans, if any, will be deducted from the final payment(s) made to you by JCCLP.
The working notice and/or pay-in-lieu of working notice and severance pay (if applicable) provisions in this Annex A include any and all entitlements, statutory or otherwise, and, without restricting the generality of the foregoing, any entitlements you may have to overtime pay, public holiday pay, vacation pay, commissions, bonuses, termination pay, severance pay or compensation in lieu of reasonable notice of termination at common law and against Johnson Controls Canada LP or its insurers for benefits of any kind, provided that you will be not be paid less than you are entitled to be paid under applicable provincial employment standards legislation.
In addition, if JCCLP terminates your employment without cause and you sign a release in a form acceptable to JCCLP, JCCLP will provide you with a lump-sum payment equivalent to 4 weeks of pay based on your salary for each completed year of service with JCCLP, with a minimum payment equivalent to 4 weeks of salary and a maximum payment, inclusive of the payment in Paragraph 14 above, equivalent to
78104 weeks’ of salary. Furthermore, after the end of the applicable provincial employment standards statutory notice of termination period, JCCLP will continue, for the number of weeks calculated in accordance with this paragraph 16, to make its regular employer contributions towards only your group extended medical and dental coverage only. Your employee share of contributions to your group extended medical and dental benefit plans, if any, will be deducted from the payment to be made to you by JCCLP in accordance with this paragraph 16.
[6] In a termination letter dated June 27, 2018, the plaintiff was advised that he would be paid $89,652.02 (less deductions and withholdings), equivalent to eight weeks pay in lieu of notice and 14.3 weeks statutory severance as provided by the Ontario Employment Standards Act. The company also advised that it would continue his medical, dental and retirement benefits for eight weeks.
[7] The defendant also advised the plaintiff that it would pay the sum of $225,135.12 (less deductions and withholdings) equivalent to a further 56 weeks of pay and would also provide extended health and dental benefits for that 56-week period. This amount would be paid, according to the termination letter, only if the plaintiff signed a multi page release which was attached.
[8] It is the plaintiff’s evidence that he had been awarded RSUs in 2016 and 2017 which had not yet vested and had a value of $118,335.95. He understood from the letter that the company did not intend to provide him with those funds. The sums the employer proposed to pay him as lump sum compensation were based only on his base salary and did not include the value of the RSUs which constituted about 37 percent of his compensation package. The proposed release contained a waiver of any right to compensation for bonuses or profit-sharing or any other entitlements whatsoever.
[9] Under these circumstances, the plaintiff did not sign the release and commenced this litigation.
The issue
[10] The issues can be distilled into two central questions. Firstly, does the wording in the employment contract limit the plaintiff’s entitlement to compensation to the amounts he was offered in the termination letter? Specifically, does the employer have the right to forfeit the RSUs already earned and to exclude the value of RSUs from the calculation of pay in lieu of notice? Secondly, if the employer’s calculation is correct, has the plaintiff forfeited the right to the lump sum payment because he did not sign the release?
[11] The employer argues that on a plain reading of these provisions, the employee was told that he could be terminated without cause at any time and in that event, he would be entitled only to the minimum entitlement provided by the Employment Standards Act applied to his base salary. In the case of such termination, the employee would forfeit any entitlement to commission, bonuses or other entitlements and would have no right to claim damages at common law. However, the employer undertakes to provide an enhanced termination benefit of up to 104 weeks salary in lieu of notice, calculated on the basis of four weeks for each year of employment, but only if the employee signs a release drafted by the employer.
[12] Counsel for the plaintiff argues that the termination provisions are ambiguous. She also argues that while there is a provision in the Johnson Controls “Share and Incentive Plan” providing for forfeiture of the RSUs when employment ends, that provision was never brought to the attention of the plaintiff, and he was never shown a copy of the plan. The court is urged to interpret the employment contract in a manner providing the plaintiff with full compensation for his losses during the notice period. Finally, counsel argues that the plaintiff should not be penalized for declining to sign a release while he has a dispute with the employer and is exercising his right to have the court adjudicate the matter.
Analysis
[13] When this matter was first scheduled for a summary judgment motion, the plaintiff relied heavily on the decision of this court in Battiston v. Microsoft Canada Inc.[^2] In that decision (Battiston) Justice Faieta ruled that it was improper for Microsoft to nullify unvested stock awards because the provisions of the plan providing for such had not been brought to the attention of Mr. Battiston. In reaching that conclusion, Faieta J. relied on the decision of Chief Justice Strathy in O’Reilly v. IMAX Corporation.[^3]
[14] In its decision (IMAX), the Court of Appeal held that loss of the right to exercise RSUs and stock options that would have accrued during the notice period forms part of the damages available to a terminated employee at common law. The general principle in awarding tort damages is to “place the employee in the same financial position they would have been in had such notice [that is reasonable notice] been given”. The Court of Appeal affirmed that the proper approach to wrongful dismissal cases is to consider the common law right to damages for breach of contract and then to consider whether the employment contract limits those rights.[^4]
[15] As mentioned, in Battiston, Faieta J. found that the failure to draw the forfeiture provision to the attention of the plaintiff meant that it could not form part of the employment contract and Mr. Battiston remained entitled to his stock options. In 2021, an appeal of Battiston was heard and the Court of Appeal reversed the decision as it related to entitlement to stock options. This was because each year when Mr. Battiston accepted his stock award, he was required to read the terms of the plan by scrolling through a drop-down window and then to certify that he had read the terms. Although it was Mr. Battiston’s evidence that he did not read those terms, the Court of Appeal held that he did have notice. Mr. Battiston had made a conscious decision not to read the terms and had misrepresented his assent to those terms when he clicked on the check box.[^5]
[16] The appellate decision in Battiston was decided on a narrow evidentiary point. For 16 years, the plaintiff had annually been provided with a copy of the stock option plan including the forfeiture provisions. The decision in no way undermines the authority of the IMAX case or the cases referred to in that decision. In particular, Paquette v. TeraGo Networks Inc., which deals with entitlement to compensation for loss of a bonus, strongly emphasises the objective of common law damages in making the plaintiff whole.
[17] In the case at bar, there is no evidence that Mr. Maynard was ever provided with a copy of the Johnson Controls “Share and Incentive Plan” or that the forfeiture provisions in the plan were drawn to his attention. The forfeiture clause is found in paragraph four of the plan under the heading “Termination of Employment – Risk of Forfeiture”. There are several paragraphs dealing with retirement, death, disability and divestiture or outsourcing. Subparagraph e) dealing with “Other Termination” reads as follows:
e. Other Termination. If the Participant’s employment terminates for any reason not described above (including for Cause), then any Restricted Shares or any Restricted Share Units (and all deferred dividends paid or credited thereon) still subject to the Restriction Period as of the date of such termination shall automatically be forfeited and returned to the Company. In the event of the Participant’s involuntary termination of employment by the Company or an Affiliate for other than Cause, the Committee may waive the automatic forfeiture of any or all such Restricted Shares or Restricted Share Units (and all deferred dividends or other distribution paid or credited thereon) and may add such new restrictions to such Restricted Shares or Restricted Share Units as it deems appropriate. The Company may suspend payment or delivery of Shares (without liability for interest thereon) pending the Committee’s determination of whether the Participant was or should have been terminated for Cause.
[18] Mr. Maynard was not aware of this provision. It provides for automatic forfeiture of RSUs in the case of termination of employment but then provides for discretionary relief from forfeiture by the “committee” in the case of termination other than for cause. Mr. Maynard was aware that other executives who had been terminated had been permitted to retain their RSUs, but he was neither aware of, nor was he offered, a mechanism to retain his.
[19] The question is not really whether the terms of the plan permit the plan to forfeit the RSUs. The question is whether the employment agreement limits Mr. Maynard’s right to compensation to salary alone. Had the forfeiture provisions been brought to his attention as they were in Mr. Battiston’s case, then those provisions might have formed part of his contract of employment. Here they were not brought to his attention, but even if they had been they contain an ambiguity because the “committee” has discretion not to forfeit the RSUs when the dismissal is not for cause.
[20] The pertinent question is whether the wording of paragraphs 14 to 16 of the employment agreement are sufficiently clear to limit Mr. Maynard’s right to compensation to the amounts the employer offered to pay him. Those provisions quoted above form part of “Annex A – Additional Terms and Conditions of Employment” attached to the letter of employment which had to be signed and returned by 1:00 p.m. the following day or the “offer of employment shall automatically expire and it shall be null and void”.
[21] There is no doubt the language could be clearer. Apart from vacation pay and benefits, the employer argues that it is the intention of the agreement to limit its liability to the salary portion of the plaintiff’s remuneration during the minimum statutory notice period required by the Employment Standards Act and the additional notice period the employer offered in exchange for a release. It would have been easy to say that in simple language. Instead, there are three dense and lengthy paragraphs which variously use the terms “wages” and “salary”. The paragraphs are comprehensible if carefully reviewed with a lawyer and by referring to the Employment Standards Act in which “wages” is a specific defined term.[^6]
[22] In my view, it would not have been clear to Mr. Maynard that in the case of termination without cause, he would be forfeiting any RSUs previously awarded to him but not yet vested. Nor would it have been clear to him that the calculation of wages or compensation during the notice period would not include the value of his regular bonus and equity share. In the absence of clear words of limitation, he is entitled to compensation for the loss of that income during the contractual period of pay in lieu of notice.
[23] The agreement does contain other words of limitation. Under this agreement, Mr. Maynard has no right to pursue common law damages or to seek compensation other than the continuation of his income during the agreed upon notice periods. It would have been clear from the language of paragraph 15, which is repeated in somewhat different terms in paragraph 20, that the agreement was intended to limit his rights and to preclude claims or rights of action other than the entitlements under the agreement.
[24] I conclude therefore that the plaintiff’s entitlement to compensation for termination without cause, should have included the salary, benefits and the value of the RSUs during the notice period established by the contract. That is four weeks for every year of employment, but calculated on the basis of his total compensation and not just his base salary.
[25] Turning briefly to the question of whether or not the failure to sign a release disentitles the plaintiff to the additional pay in lieu of notice provided in paragraph 16, it would be unfair and unreasonable to enforce that condition in light of my determination that the calculation of the amount is in error.
[26] The proposed release was not attached to the letter of employment. The agreement simply provides that the employee will be entitled to be paid the additional pay in lieu of notice upon signing a release satisfactory to the employer. It is unreasonable to insist on a release if the amounts are in dispute. The plaintiff remains willing to sign a release once the court has adjudicated on the amount he is owed and it has been paid. He could not have signed the detailed multi-paragraph release he was presented with unless he was prepared to give up the right to his accrued RSUs or to challenge the employer’s calculation of the lump sum payment. He could not have mitigated his loss by accepting the offer without giving up the right to pursue the additional compensation to which he was entitled.
[27] In my view it is unreasonable to make a payment conditional upon signing a release which the employee has never seen in circumstances which the employee cannot foresee. It is one thing to insist upon a release once the amount has been agreed upon. It is quite another to draft a contractual provision that requires the employee to accept the employer’s calculation as a condition of receiving the compensation.
Conclusion
[28] For the reasons given above, I am granting summary judgment to the plaintiff. He has already been paid the minimum required under the Employment Standards Act which is the payment contemplated by paragraph 14 of the employment agreement. He remains entitled to the additional payment provided under paragraph 16 for 56 weeks of pay. The employer’s calculation of $225,135.12 as the additional amount of the base salary owing for that time period is not disputed.
[29] The parties also agree that the value of the RSUs that had been awarded and then forfeited is $92,348.08. That amount should also be paid to the plaintiff.
[30] The parties disagree as to how the value of the bonus should be calculated should I rule in favour of the plaintiff. The plaintiff proposes a three-year average whereas the defendant suggests that a two-year average would be more appropriate. This is because the plaintiff’s terms of employment changed significantly in 2016 when he was promoted and enrolled in the Regional Leadership Incentive Plan and Johnson Controls Equity Plan. I agree with the employer on this point. The two-year average was US$67,784.00 and using the exchange rate of 1.2803 that generates a figure of C$86,783. Using that average, the additional amount owing for the bonus during the contractual notice period of 56 weeks would be $93,459.54. The plaintiff is also entitled to the value of his benefits which would be $22,513.52.
[31] In conclusion, the plaintiff is entitled to judgment for $427,891.18 ($225,135.12 + $86,783.00 + $93,459.54 + $22,513.52). I assume counsel can calculate any amounts of pre-judgment interest, but if not then I may be spoken to. I also encourage counsel to reach agreement on costs but if they cannot do so then they may contact my office within 30 days to obtain further direction.
Justice C. MacLeod
Date: July 4, 2022
COURT FILE NO.: CV-19-618604 DATE: 2022/07/04
ONTARIO SUPERIOR COURT OF JUSTICE
RE: John (Jack) Maynard, Plaintiff AND: Johnson Controls Canada LP, Defendant
BEFORE: Regional Senor Justice Calum MacLeod
COUNSEL: Natalie MacDonald & Chris Randall, for the Plaintiff (Moving Party) Laura Brazil & Reuben Rothstein, for the Defendant (Responding Party)
DECISION AND REASONS
Regional Senior Justice Calum MacLeod
Released: July 4, 2022
[^1]: Paragraph two of the plaintiff’s factum, paragraph 18 of the defendant’s fresh as amended factum. [^2]: 2020 ONSC 4286 [^3]: 2019 ONCA 991 [^4]: IMAX @ paras. 22 - 24 [^5]: Battiston v. Microsoft Canada Inc., 2021 ONCA 727 [^6]: Employment Standards Act, 2000, SO 2000, c.41 as amended