CEO ’s damages include everything from notice period, even though he was gone

Martell v. Ewos Canada Ltd., 2005 CarswellBC 59, 2005 BCSC 43 (B.C. S.C.)

Denis Martell was hired by Ewos Canada Ltd. to be the president and chief executive officer of General Sea Harvest Ltd. (GSH), a new fish farming company in British Columbia. A similar operation owned by Ewos had not been particularly successful, but the operation set up by Martell did very well.

He was made president and CEO of Ewos Canada and the second-in-command of Ewos Division, a larger entity with a number of international operations. In September 1999, after discussions with the managing director to whom he reported, he signed a formal employment agreement with the company. The managing director had told him the company would not write into a contract a severance package of more than 12 months’ salary; but they reached a compromise whereby the company agreed that in the event of termination the 12-month payment would not restrict Martell’s entitlements under the law.

The agreement that followed set his effective service date as Sept. 1, 1990. In April 1999, anticipating the sale of the Ewos Division, Martell and other members of the management group negotiated a “stay-on bonus” of one year base salary for agreeing to stay with the company for at least a year following any sale.

In February 2000 the company was sold and in January 2001 he was advised that his employment was terminated effective immediately. At the time his base salary was $245,000 per year with a $15,000 car allowance and car expenses of $250 per month. During 2000 he had been actively involved in talks to give the Ewos Division management group an ownership stake in the company, but the talks had failed and, in fact, were a factor in the new owner’s decision to terminate Martell and his old managing director.

In March 2001 Martell launched a wrongful dismissal action against the defendants. Two weeks later the company paid him his base salary for one year and his car allowance, less deductions. A statement of defense filed by the company in May conceded Martell had been dismissed without cause. In August 2002 the company amended its claim. Martell had recently been discovered, it claimed, to have arranged to have the company pay for his golf club membership and related fees.

This was improper and constituted a breach of the employment agreement – and thus his dismissal had been for cause, it claimed. The company filed a claim to recover sums paid to Martell, including the severance payment. Martell responded that there had not been any impropriety in the golf club membership, and that it had been approved by his superior. On that question the court ruled in Martell’s favour and thus that there had been no misconduct or deceitful action.

Ultimately it found the company had not satisfied its burden of proof in its claim that Martell had been fired for cause, and dismissed the company’s counterclaim. The court sided with Martell in ruling his severance payment was separate from any common-law settlement he was entitled to. The exact amount of reasonable notice was thus the only issue left for the court to decide. The company claimed Martell is not entitled to any bonus or participation scheme which was formalized after his dismissal.

The court agreed he was not entitled to any specific bonuses based on his expectations stemming from the 2000 talks, but it ruled he is entitled to damages based on what he would have been entitled to had he continued to be employed through the notice period. His salary and car bonus was easy enough to determine, but the bonus arrangements were complicated. Martell had a unique position, the Canadian CEO of an international corporation which had been recently restructured so that his position had been altered.

If the restructuring had resulted in lower remuneration, then Martell would only be entitled to reduced damages, ruled the court. The principle that a successful plaintiff entitled to what he would have earned through the notice period can thus work for or against him. In this case the court ruled Martell’s position was similar to the members of the Ewos Division management group who were kept on.

Martell was thus deemed entitled to the benefits of all the programs through May 5, 2002. He was awarded:

•one year’s salary plus pension, car allowance and bonus as per the employment agreement;

•$363,000 for 16 months’ salary in lieu of notice as part of the common-law notice period (plus car allowance and eight per cent salary bonus for a total of $46,000);

•two bonus payments of $192,200 each, which matched awards given all senior managers on May 1, 2001, and May 1, 2002; and

•the value of two awards of 5,000 share options at $400 per share, as issued on those May 1 dates. The court declined to attribute a cash value to the share options, ordering the litigants to determine the value of the shares at the time they were granted.

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