Worker wasn't made aware of termination clause in share and incentive plan
The Ontario Court of Appeal has upheld the decision of a motion judge awarding a worker extra payments contemplated by a termination clause for signing a release, despite the fact that the worker didn’t actually sign a release.
The worker was an employee of Johnson Controls Canada LP, a building technology, software, and services company based in Richmond Hill, Ont. He was hired in 2004.
In 2014, the worker’s compensation structure was changed to include a base salary, benefits, and a bonus and incentive plan. The latter was provided through Restricted Stock Units (RSUs), a delayed bonus that eventually becomes freely traded shares of the company once they vested.
RSUs were governed by Johnson Control’s Share and Incentive Plan (SIP), which included a provision that if the worker was terminated without cause, any RSUs “still subject to the restriction period as of the date of such termination shall automatically be forfeited and returned to the company.” The company retained a discretion to waive the automatic forfeiture.
However, the worker was not informed of the forfeiture provision in the SIP when it came into force.
Bonuses may be included in termination pay if they’re an integral part of the compensation package, says a lawyer.
Termination clause
The worker’s employment contract also contained a termination provision that allowed Johnson Controls to terminate his employment at any time without cause with “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.” The clause stipulated that, if the worker signed a release, the company would provide him with a lump-sum payment of four weeks’ salary for each completed year of service up to a maximum of 104 weeks’ salary.
On June 27, 2018, Johnson Controls terminated the worker’s employment without cause and paid him the equivalent of eight weeks’ pay in lieu of notice and 14.3 weeks’ statutory severance under the Ontario Employment Standards Act, 2000 (ESA). The company said that if he signed a release by July 4, it would pay him salary and extend his benefits for another 56 weeks.
The worker refused to sign the release, as the offer didn’t include his bonus or the value of his RSUs, which amounted to 37 per cent of his compensation package. He then sued for the full value of this pay, benefits, bonus, and RSUs.
A motion judged granted the worker summary judgment for the full entitlement under the provision for signing a release, including his bonus and RSUs.
Employers should keep in mind that “active employment” in a bonus plan’s termination clause could include the reasonable notice period, according to a lawyer.
Worker gave up common law entitlements: employer
Johnson Controls appealed, arguing that the worker gave up his entitlement to common law damages by signing an employment contract that limited his entitlement to the ESA minimums. It also argued that the motion judge misinterpreted the employment agreement and the worker did not sign a release entitled him to the extra payment.
The Court of Appeal found that the worker did not agree to the forfeiture of his RSUs because he wasn’t aware of it when he was made aware of the SIP. As a result, excluding the RSUs from the calculation of his entitlement under the termination clause breached the employment contract, the appeal court said.
The appeal court also found that it was open to the motion judge to interpret the payment for signing a release to include the bonus and RSU elements of the worker’s compensation, in addition to base salary and benefits. Nothing in the employment agreement allowed an erroneous calculation of the worker’s pay – or an “arbitrary deadline” such as the one given to the worker, the court said.
“It was not open to Johnson [Controls] Canada to attempt to force [the worker] to sign a release that was not calculated properly under… the employment agreement,” said the Court of Appeal.
The Court of Appeal upheld the motion judge’s decision entitling the worker to the full amount for salary, benefits, bonus, and RSUs and dismissed the appeal, noting that, alternatively, the worker would still be entitled to the same amount as damages for breach of contract. See Maynard v. Johnson Controls Canada LP, 2023 ONCA 392.
A clear and well-drafted condition of eligibility limited a fired employee’s entitlement to their bonus as a part of their termination pay, the Alberta Court of Appeal ruled.
