A legal expert explains how employers can ensure terminated staff don’t claim more than they’re entitled to
In May of this year, CCP’s own Susan Crawford was successful at the Ontario Court of Appeal, when that court upheld the trial decision in Kielb v. National Money Mart Company (the original decision is discussed here).
Well, now the Alberta Court of Appeal has issued a similar decision, arguably going even further to defend an employer’s right to craft and enforce discretionary bonus language related to termination of employment, even where that language deprives an employee of bonus payments to which he or she would otherwise be entitled.
In Styles v. Alberta Investment Management Corporation, Alberta’s highest court overturned the decision of a trial judge who had overstepped the bounds of judicial discretion in creating a “common law duty of reasonable exercise of discretionary contractual power” when interpreting the employment agreement of a dismissed employee.
While the Court of Appeal acknowledged that the Supreme Court of Canada’s decision in Bhasin v. Hrynew had indeed shifted the common law with respect to the duty of good faith in contractual performance, it rejected the trial judge’s attempt to piggyback on that reasoning to create and impose upon employers this new, much broader duty.
In doing so, the Court of Appeal both clarified the principles and limited application of Bhasin, stating:
Firstly, the Bhasin principle relates to the performance of the contract. It does not relate to the negotiation or terms of the contract. Bhasin does not invite the court to examine the terms of the contract and decide if they are "honest," "capricious" or negotiated in "good faith", much less whether they are "fair and reasonable. … Unless a contract is unconscionable or contrary to public policy, it is to be enforced in accordance with its terms. Bhasin did not open up for examination whether the terms of the Long Term Incentive Plan requiring continuous employment on the vesting date were "fair" or "reasonable".
Secondly, Bhasin does not make it dishonest, in bad faith, nor arbitrary to require that the other party perform the contract in accordance with its terms. If the contract clearly says that an employee must be employed on the vesting date to earn a bonus, it is not dishonest to insist that the employee is actually employed on the vesting date. The employment contract required payment of a bonus only if the preconditions were met. If the preconditions were not in fact met, the failure to pay the bonus cannot be described in any sense as being "dishonest. Declining to perform contractual covenants and promises that were never given is entirely reasonable. Refusing to pay a bonus that is not payable is not dishonest.
As you can see, the Alberta Court of Appeal was unequivocal: just because a condition is unfavourable to one or the other party does not make it dishonest or worthy of deeper examination by the courts, and the threshold for any such dissection is “unconscionability”; notably, not “fairness” or reasonableness”.
Also notable is the fact that the Supreme Court of Canada recently denied leave to appeal in this matter.
While there has recently been much litigation surrounding bonus obligations upon termination, we see the Alberta Court of Appeal’s decision in Styles – much like the Ontario Court of Appeal’s decision in Kielb – as simply a logical enforcement of basic contract law.
This is encouraging for employers who have well-drafted employment agreements that address all aspects of the employment relationship on termination, as it means these will be upheld and enforced.
For assistance in drafting or enforcing employment agreements, contact any of the members of the CCPartners team.
Related stories:
How to avoid the ‘compensation trap’
Court ruling strips power from bonus policies
Well, now the Alberta Court of Appeal has issued a similar decision, arguably going even further to defend an employer’s right to craft and enforce discretionary bonus language related to termination of employment, even where that language deprives an employee of bonus payments to which he or she would otherwise be entitled.
In Styles v. Alberta Investment Management Corporation, Alberta’s highest court overturned the decision of a trial judge who had overstepped the bounds of judicial discretion in creating a “common law duty of reasonable exercise of discretionary contractual power” when interpreting the employment agreement of a dismissed employee.
While the Court of Appeal acknowledged that the Supreme Court of Canada’s decision in Bhasin v. Hrynew had indeed shifted the common law with respect to the duty of good faith in contractual performance, it rejected the trial judge’s attempt to piggyback on that reasoning to create and impose upon employers this new, much broader duty.
In doing so, the Court of Appeal both clarified the principles and limited application of Bhasin, stating:
Firstly, the Bhasin principle relates to the performance of the contract. It does not relate to the negotiation or terms of the contract. Bhasin does not invite the court to examine the terms of the contract and decide if they are "honest," "capricious" or negotiated in "good faith", much less whether they are "fair and reasonable. … Unless a contract is unconscionable or contrary to public policy, it is to be enforced in accordance with its terms. Bhasin did not open up for examination whether the terms of the Long Term Incentive Plan requiring continuous employment on the vesting date were "fair" or "reasonable".
Secondly, Bhasin does not make it dishonest, in bad faith, nor arbitrary to require that the other party perform the contract in accordance with its terms. If the contract clearly says that an employee must be employed on the vesting date to earn a bonus, it is not dishonest to insist that the employee is actually employed on the vesting date. The employment contract required payment of a bonus only if the preconditions were met. If the preconditions were not in fact met, the failure to pay the bonus cannot be described in any sense as being "dishonest. Declining to perform contractual covenants and promises that were never given is entirely reasonable. Refusing to pay a bonus that is not payable is not dishonest.
As you can see, the Alberta Court of Appeal was unequivocal: just because a condition is unfavourable to one or the other party does not make it dishonest or worthy of deeper examination by the courts, and the threshold for any such dissection is “unconscionability”; notably, not “fairness” or reasonableness”.
Also notable is the fact that the Supreme Court of Canada recently denied leave to appeal in this matter.
While there has recently been much litigation surrounding bonus obligations upon termination, we see the Alberta Court of Appeal’s decision in Styles – much like the Ontario Court of Appeal’s decision in Kielb – as simply a logical enforcement of basic contract law.
This is encouraging for employers who have well-drafted employment agreements that address all aspects of the employment relationship on termination, as it means these will be upheld and enforced.
For assistance in drafting or enforcing employment agreements, contact any of the members of the CCPartners team.
Related stories:
How to avoid the ‘compensation trap’
Court ruling strips power from bonus policies