Court upholds agreement allowing employer to get back shares upon termination
The Alberta Court of Appeal has upheld a lower court’s decision that a dismissed worker’s wrongful dismissal damages should not include shareholder profit-sharing payments during the reasonable notice period, after the employer opted to buy back the shares.
The worker was a manager, projects and solutions services, for Spartan Controls, an industrial automation solutions company based in Calgary. He joined Spartan in 1997.
Spartan had an optional shareholder profit sharing (SHPS) program that was available to all permanent employees after three years with the company. Eligible employees could purchase shares in Spartan’s parent company, Spartech 1991 Limited, which would help Spartan finance its operations and growth. Shareholders received annual payments based on company profitability, usually at the end of March. Sometimes, a second payment was made in late June.
For employees in the SHPS program, payments were paid as either employment income or a combination of employment and dividend income, depending on what worked the best for tax purposes.
Share purchase program
The worker purchased 73,600 shares of Spartech 1991 as part of the SHPS program over several years starting in 2000. He signed the unanimous shareholder agreement (USA) that was required to join. The USA authorized Spartan to buy back employee-owned shares at any time with 90 days’ notice, “in the event any shareholder’s employment or association with the company is terminated… before reaching normal retirement age.” This was an obligation to buy back all shares owned by the shareholder, not just some, if Spartan chose to do so with that 90 days’ notice.
On April 4, 2022, Spartan terminated the worker’s employment. The termination letter included a notification that the company was giving notice under the USA that he was required to sell all his Spartech 1991 shares back to the company within 90 days. The company then paid him for the shares based on the 2022 share price.
The worker sued for wrongful dismissal and the trial judge found that he was entitled to 20 months’ reasonable notice of termination. Spartan was ordered to pay the worker damages equal to 20 months’ base pay, benefits, and quarterly bonus payments during the reasonable notice period. However, although the trial judge agreed that SHPS payments were a part of the worker’s compensation as an employee, the judge found that the USA authorized Spartan to buy back employee-owned shares at any time with 90 days’ notice. As a result, SHPS payments only for the first 90 days of the notice period were included.
The worker appealed the SHPS finding, arguing that he was entitled to the payments during the notice period because, but for his wrongful dismissal, he would have retained his shares and received the payments and the USA didn’t unambiguously limit his right to damages for the payments. He also asserted that Spartan’s triggering of the buy-back of his shares was “oppressive and bad faith conduct.”
Compensation package
Spartan countered that the worker received the SHPS payments as a shareholder and they weren’t part of his compensation as an employee, so the common law relating to breaches of employment contracts didn’t apply. The company also argued that the USA unambiguously limited the worker’s entitlement to claim SHPS payments as part of reasonable notice damages and filed a cross-appeal over the trial judge’s finding that the payments were part of the worker’s employment compensation.
The Court of Appeal found that the SHPS program and the USA were integral to the worker’s employment agreement and his participation in the program was linked to his role as an employee. Although the payments were connected to share ownership, they were appropriately included in the initial damages calculation, said the court.
The court also found that the USA unambiguously permitted Spartan to buy back shares with 90 days’ notice, and this provision justifiably constrained the worker’s entitlement to SHPS payments beyond that period of time. In addition, the trial judge correctly applied the principle established by the Supreme Court of Canada that damages should reflect the least burdensome means of contract performance, the appeal court said.
The court dismissed the worker’s arguments regarding oppression and bad faith, noting that all SHPS participants had historically been required to sell their shares upon termination and there was no evidence of abusive or unfair conduct by Spartan.
The court found no reviewable error in the trial judge’s assessment of damages, based on the contractual terms and applicable legal principles. The worker’s appeal and the company’s cross-appeal were dismissed. See Kirke v. Spartan Controls Ltd, 2025 ABCA 40.
