'Courts will interpret any ambiguous term against the employer' in bonus plan restrictions
“Regardless of previous decisions on assessments and calculation of benefits, pensions, and privileges, employers should still ensure that they are clearly capturing their intent with properly drafted agreements and policies – this will help to avoid disputes or to resolve them at an earlier stage.”
So says Nhi Huynh, an employment lawyer at Williams HR Law in the Toronto area, regarding the importance of the language in benefits and bonus plans.
The Ontario Superior Court of Justice recently awarded not just 24 months’ salary and benefits to a dismissed Air Canada worker, but also all the bonuses to which the worker would have been entitled under the airline’s annual incentive plan and profit-sharing plan during that two-year period.
Pandemic staff cuts
The 54-year-old worker was hired by Canadian Airlines in 1996, which was absorbed by Air Canada in 2000. By 2020, the worker held the position of international operations training manager based in Montreal. She had no employees reporting to her, but her position involved mentoring and training new managers.
When the COVID-19 pandemic began, the travel industry was hit hard. Air Canada had to reduce its workforce by more than half, including terminating the worker’s employment in May 2020. The worker declined a severance package, so Air Canada paid the worker the minimum statutory entitlements.
Over the next 13 months, the worker applied for 17 jobs. She received two interviews but no job offers. She enrolled in a college retraining program in September 2021 and found two part-time positions in the spring of 2022.
The worker sued for wrongful dismissal, seeking damages for 24 months’ common law reasonable notice including lost benefits, pension contributions, incentive plan and profit-sharing plan bonuses, lost travel privileges, and the 25th anniversary service award – which she would have reached during the notice period.
Air Canada argued that 12 months’ notice was more appropriate as she wasn’t a manager, the bonus plans excluded terminated employees, and the worker failed to reasonably mitigate her damages.
The court noted that the worker had more than 23 years of service, which was a significant factor in determining the notice period. In addition, her employment was terminated because of the economic uncertainty of the pandemic, which was a factor that could lengthen the notice period given the difficulty of finding similar employment, said the court.
“You could tell that the pandemic was an important factor just given that with the airline industry it would have been difficult for [the worker] to find comparable jobs anywhere,” says Huynh. “There were lockdowns everywhere and it was just more difficult to make the same type of effort in terms of mitigation during the pandemic than pre-pandemic.”
An Ontario court ordered Air Canada to enrol a dismissed worker in a retiree benefits plan.
Character of employment not important: court
The court also found that the worker’s role had a lot of responsibility. Air Canada tried to emphasize that the worker didn’t have any direct reports, but the court said that the character of the employment was declining in importance as a factor in calculating reasonable notice.
That view of the Ontario Court of Appeal in Di Tomaso v. Crown Metal Packaging Canada LP, 2011 ONCA 469 – that the character of employment was less relevant – hadn’t necessarily been followed by courts until the pandemic came along, says Huynh.
“While courts have largely ignored the analysis in Di Tomaso, it is likely now that in certain industries the character of employment is not as important due to the pandemic,” she says. “The pandemic has changed the playing field and for some employees it may not be the case anymore that someone in a lower-level position will be able to find comparable work easily within their industry’s market.”
The court found that the upper limit of 24 months was an appropriate length of notice and it was reasonable to set damages for lost benefits to be equivalent to a comparable plan in the market.
The Supreme Court of Canada clarified the test for bonus damages and addressed the employer’s obligations of good faith in a 2020 wrongful dismissal case.
Ambiguous pension, bonus plan wording
Huynh points out that the key test for benefit and bonuses entitlements during the notice period is whether the employment contract was unambiguously drafted to take away common law entitlements. Air Canada failed to meet that test by using different terms assuming that they could be used interchangeably, she says.
Air Canada’s pension plan excluded “any amount payable subsequent to or on account of the termination of service” and termination of employment was defined as the “cessation of continuous service which is not the result of retirement.”
The worker was entitled to pension contributions as part of her damages unless a contract clearly and unambiguously limited her right to pension accrual over the notice period, said the court. However, the plan was unclear as to whether “termination of service” was meant to be the same as “termination of employment.” This created ambiguity, said the court in ruling that the worker was entitled to damages for pension contributions during the notice period.
Air Canada’s annual incentive plan and profit-sharing plan stated that employees who weren’t performing their employment duties on the bonus payout date would not be eligible and all entitlements that were unpaid on the termination date would be cancelled. The termination date for both plans was defined as the later of the date either party provided notice of termination or the last day the employee was required to perform employment duties.
The court found that both of the plans were ambiguous in their instructions and didn’t clearly remove the worker’s right to bonus payments during the common law notice period. The worker was entitled to payments for the 2020 and 2021 fiscal years, as the payment dates both fell within the 24-month notice period, the court said.
“Is it all clearly drafted until there’s no way of interpreting things in a different manner that you intended?” says Huynh. “That was the case here, where it was ambiguous and that led to the employee being entitled to the pension contributions – same thing with the annual incentive and profit-sharing plans.”
Courts have been evaluating whether the pandemic should be factored into reasonable notice entitlements.
No entitlement to service award, travel privileges
As for the employee travel privileges and the service award, the court found that these were employment privileges and not contractual employment benefits. Neither were part of the terms and conditions of employment, nor were they included in the benefits program, said the court. In addition, Air Canada retained the discretion to revoke both the travel privileges and employee service awards.
The court’s decision regarding travel privileges and the service award was interesting, as it didn’t follow the same court’s finding in Ruel v. Air Canada, 2022 ONSC 1779, that specific performance for this type of privilege was appropriate, says Huynh.
Looking at the worker’s mitigation efforts, the court noted that they only needed to be reasonable, not perfect, and the onus was on the employer to establish a failure to mitigate. The worker had evidence of an extensive job search, attending educational programs, and career counselling. Given the circumstances of the pandemic, the worker started her job search within a reasonable amount of time, said the court.
The court also found that it was reasonable for the worker to only look for jobs where she lived and Air Canada didn’t provide examples of positions for which the worker should have applied. The airline failed to meet its onus of showing that the worker failed to mitigate her damages, said the court.
“While mitigation efforts are still contextual, the pandemic can certainly limit an individual’s ability to mitigate and courts are more lenient than they used to be with respect to assessing mitigation efforts,” says Huynh. “It’s the employer’s responsibility to show that the individual’s mitigation conduct was unreasonable in all aspects – this will be difficult to prove where a former employee’s mitigation efforts are restrained through no fault of their own.”
An HR lawyer discusses four key factors in common law reasonable notice entitlements.
The court ordered Air Canada to pay the worker damages equal to 24 months’ salary and benefits, less statutory payments and mitigation income, plus bonuses she would have received during the notice period had she still been working.
Without an enforceable termination provision, the notice period couldn’t be avoided, but bonus plans and a pension plan with better clarity could have saved Air Canada some money, says Huynh.
“Courts will interpret any ambiguous term against the employer, so ensure that your employment contracts and policies are carefully drafted so that it is clear what is being referred to, the period that it applies to, and any criteria or thresholds that need to be met,” she says. “Avoid using different terms interchangeably or using terms that have different interpretations without a proper definition.”
