Alberta Court of Appeal Overturns Contentious Bonus Award Because Employee Was Not Actively Employed On Vesting Date

Previously printed in the LexisNexis Labour Notes Newsletter.

In Styles v. Alberta Investment Management Corporation, 2017 ABCA 1, the Alberta Court of Appeal (the “Court”) reversed a lower court decision that had awarded a dismissed employee, David Styles, almost $500,000 for an unpaid incentive bonus in spite of the fact he was disentitled to any bonus pursuant to the terms of his written employment contract.  This decision is significant for employers because it confirms that judges should not rewrite an employment contract in favour of a dismissed employee to award what they think is “fair”.

Background

This case was concerned with Mr. Styles’ entitlement to be paid an incentive bonus by his employer, Alberta Investment Management Corporation (“AIMCo”). Mr. Styles was dismissed without cause and received pay in lieu of notice in accordance with the terms of his employment contract.  AIMCO’s bonus plan stipulated that an employee only became eligible for a bonus after four years of employment and had to be an active employee on the vesting date in order to receive the payment.  When Mr. Styles was dismissed, he had not been an employee for four years and he was also not an active employee on the vesting date.  AIMCo accordingly took the position that Mr. Styles was not entitled to be paid the bonus.  Mr. Styles sued for wrongful dismissal, seeking payment of the bonus.

Alberta Court of Queen’s Bench

The lower court judge found the wording of the bonus plan inherently contradictory and awarded Mr. Styles damages of nearly half a million dollars for the lost bonus. The purpose of the bonus was to attract talented employees and the method used was compensation based on performance.  As a result, the judge found that AIMCo’s restrictions on receiving the bonus contradicted the purpose and method.  The judge referenced Bhasin v. Hrynew, 2014 SCC 71 (“Bhasin”) in asserting that the employer had a duty to be fair and reasonable when exercising its discretionary powers under the employment contract.  It was reasonable for Mr. Styles to assume that as long as he performed his obligations, he would receive the bonus.  AIMCo dismissed Mr. Styles without cause and he was thus entitled to the bonus he had anticipated.

Alberta Court of Appeal

The Court allowed AIMCo’s appeal and dismissed Mr. Styles’ action. It explained that an employer’s decision to terminate employment without cause was not an exercise of discretion subject to any judicial assessment for reasonableness.  The Court confirmed that an employer can dismiss an employee without cause as long it provides sufficient notice or pay in lieu of notice.  Continued employment on the vesting date was a condition precedent to being entitled to the bonus.  Mr. Styles was not entitled to be paid the bonus simply because AIMCo dismissed him without cause.  The Court also explained that Bhasin does not invite a court to examine the terms of an employment contract to decide whether they are fair and reasonable.  Courts are bound to enforce the provisions of a contract unless they are unconscionable and/or against public policy.

Practical Advice for HR Professionals

Ensure your employment contracts are clear and unambiguous – The wording in an employment contract is often scrutinized in legal proceedings. Make sure your employment contracts are accurate and precise and consistent with all applicable law.

Review the terms of your incentive compensation plans – Is there a clear definition of when an employee becomes entitled to be paid a bonus? Is this limited to only those who are actively employed? What happens in the event of a termination without cause?  Is the compensation plan consistent with your employment contracts?  Your incentive compensation plan should address all of these issues and others clearly and concisely.

You do not have to explain when you are terminating without cause – Employers can dismiss employees without cause so long as they provide adequate notice or pay in lieu of notice. Providing reasons for termination can in certain situations make you vulnerable to other claims, such as complaints of prohibited discrimination under human rights legislation. Consider whether providing reasons is appropriate in all of the circumstances.