Top Court Reminds Us of Employment Law Principles Regarding Wrongful Dismissal Damages Arising from Termination of Employment

Top Court Reminds Us of Employment Law Principles Regarding Wrongful Dismissal Damages Arising from Termination of Employment

The reasons for judgment of the Supreme Court of Canada pronounced October 9, 2020 in the case of Matthews v. Ocean Nutrition Canada Ltd. restate important employment law principles that should be of interest to all of us.  As the name of the court reflects, this is the supreme law of the land and provides guidance to all employment lawyers and persons exercising a judicial function, in courts and administrative tribunals and private arbitrations, across the country in deciding employment law disputes.

The case involved a senior executive in Nova Scotia who was employed for 14 years with the company.  The new COO hired in 2007 was found to have begun a campaign to marginalize Mr. Matthews in the company by limiting his responsibilities and lying to him about his status and prospects within the company.  Mr. Matthews wanted to stay with the company because of a long term incentive plan (LTIP) which would reward him in the event that the company would be sold as was anticipated.  Mr. Matthews eventually left the company and found work with a new employer.  Thirteen months after his departure the company was sold but no amount was paid to Mr. Matthews pursuant to the LTIP due to his departure.

Mr. Matthews brought a claim against the company for constructive dismissal, and other damages arising out of the manner of his dismissal.  At trial he was found to have been constructively dismissed and entitled to 15 months’ notice.  As the LTIP payment was triggered during the notice period, Mr. Matthews was found entitled to $1.087 million for the loss of the LTIP payment, plus lost earnings during the notice period minus earnings from his new employment in mitigation as a calculation of the damages arising from the breach of contract by the failure of the company to provide reasonable notice of termination.  The majority judges of the Court of Appeal overturned the trial judge on the issue of damages finding that the LTIP barred a claim to damages under the plan.  The dissenting judge focused on the allegations of mistreatment and held that the LTIP had to be performed with “honesty and integrity”, and the failure to do so entitled Mr. Matthews to damages sustained as a result of the dishonesty.

The decision of the Supreme Court allowed the appeal and restored the judgment of the trial court, and took the opportunity in doing so to restate and clarify the application of basic employment law principles in Canada.  Of note are that the decision references and comments on Court of Appeal decisions from BC, Alberta and Ontario in reaching a decision, as well as the fact that there were several intervenor groups CACE (Canadian Association of Counsel to Employers) and legal services groups in BC and Ontario who participated in the appeal.

The key takeaways for employers in Canada are:

  • damages for wrongful dismissal are based on a breach of the implied obligation to provide reasonable notice, and not an obligation to provide payment in lieu of notice
  • damages will be those amounts that the employee would have earned during the notice period if the contract notice term was complied with, subject to mitigation
  • a benefit provided under a separate contract (such as the LTIP, or likely also a Stock Option Plan) arising during a notice period will give rise to a claim for damages, unless the language of the separate contract expressly excludes entitlement; language that will exclude entitlement will need to be clear, including stating that no entitlement will arise whether the termination was “lawful or unlawful”, or words to that effect, and that simple exclusion of a claim in the case of a termination “with or without cause”, or a requirement for “full-time or active employment”, will not be sufficient to bar recovery
  • damages for a breach of a duty of good faith in the manner of dismissal may give rise to damages based on the Hadley principle (foreseeable damages, supported by medical evidence of personal injury which may include mental distress), but any extension of claims arising from a breach of the duty of good faith will have to wait for another case
  • manner of dismissal may include a broader time period to encompass circumstances predating the dismissal, including a series of changes to working conditions, so long as the conduct forms ‘a component of the manner of dismissal’

We should be thankful at this time of year for the guidance and reminders for the law of employment in Canada provided by this decision of the Supreme Court.

Alexander Holburn Beaudin + Lang LLP is a leading Vancouver-based Canadian law firm of 85+ lawyers providing a wide range of litigation, dispute resolution and business law services.  Michael Watt is the leader of the firm’s Labour + Employment Law Practice Group. Please contact Michael or any member of our Labour + Employment Law Practice Group if you have any questions arising from this decision.

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