Employee shareholder agreement deemed transfer of shares at termination, but didn’t exclude common law entitlement for notice period
An Ontario firm must pay a wrongfully dismissed executive almost $400,000 in lieu of 26 months’ reasonable notice, plus a bonus for company shares that he would have earned during that notice period, the Ontario Superior Court of Justice has ruled.
Ivars Mikelsteins, 58, began working for Morrison Hershfield, an employee-owned engineering firm that provides engineering and constructing consulting services throughout Canada and the U.S., in 1986 — his first job out of school. Over time, he made his way up the ladder to become the director, business development, for the firm’s Telecom Business Unit. His employment agreement included a non-solicitation clause that stipulated he couldn’t work for a competitor of Morrison Hershfield for a period of one year after termination of his employment.
Mikelsteins’ job duties as a director of business development included about 50 per cent sales and business development. Mikelsteins had a technical background through his education and took sales courses while employed with Morrison Hershfield. He met with existing clients, secured ongoing projects, and sought out new ones. Usually, he managed between 20 and 30 projects at any one time and performed technical reviews of engineers’ work, with one direct report and many co-workers on the projects.
Mikelsteins was considered a good employee and never had any problems with his performance or conduct. In addition to his base salary and benefits, Morrison Hershfield provided a pay-for-performance plan and the opportunity to purchase shares in the company — which Mikelsteins did. His shareholders’ agreement provided for a share bonus that was paid annually.
By 2017, Morrison Hershfield believed Mikelsteins wasn’t securing new work as much as he had been in the past. Due to a slowdown in business, the firm was faced with some hard staffing decisions. On Oct. 26, 2017, it terminated Mikelsteins’ employment without cause.
Mikelsteins sued the firm for wrongful dismissal claiming he was entitled to a reasonable notice period of 30 months due to his 31 years of service. Morrison Hershfield acknowledged he was dismissed without cause, but argued the notice period should be 20 to 22 months as Mikelsteins, with his qualifications, should be able to find alternate employment within that time period — reasonable notice is supposed to provide an employee with a reasonable period of time to find replacement work, the firm said.
Since Morrison Hershfield didn’t dispute that he was dismissed without cause, Mikelsteins brought a motion for summary judgment for wrongful dismissal damages.
Lengthy notice period
The court noted that “there is no absolute upper limit on notice period” but there are several factors to consider in determining reasonable notice. In Mikelsteins’ case, his relatively advanced age, his length of service with Morrison Hershfield, his high pay, and the fact he had spent his entire working life with the firm were all factors that affected his ability to find comparable work In addition, his experience focused on telecommunications companies and as a result his skills were specialized, the court said.
The court also found that Mikelsteins’ non-solicitation clause further limited his ability to find similar employment. Though the clause was only in effect for one year, it affected his marketability with third-party companies and could be difficult to overcome even after it expired, the court added.
However, the court found Mikelsteins’ claim for 30 months’ notice was too high, as his role, while senior in nature, was primarily sales and business development, which are skills that are in demand in a number of areas — particularly when related to telecommunications, which is “a burgeoning field in our society.” In addition, while Mikelsteins’ role had some authority and responsibility, he had few people directly reporting to him and therefore it wasn’t as supervisory as most senior levels of the firm, the court said.
The court granted Mikelsteins’ motion for summary judgment and found the appropriate notice period was in-between the two parties’ arguments. It determined that 26 months was an appropriate period of notice — inclusive of Mikelsteins’ base salary, benefits, bonus, and company contributions to his Registered Retirement Savings Plan, which worked out to $15,114.46 per month and a total of $392,975.66 over the entire notice period.
Share bonus not excluded from common law notice
The court also found Mikelsteins was entitled to damages for the loss of his share bonus during the reasonable notice period. Morrison Hershfield argued that according to the shareholders’ agreement, “a shareholder whose association with the corporation and its affiliates ceases by reason of termination by the corporation of his/her employment with the corporation and its affiliates shall, immediately after such termination, be deemed to have given a transfer notice covering all the shares held by him/her on a date which his 30 days form the date he/she is notified of such termination by the Corporation.” As a result, Mikelsteins sold his shares on Nov. 25, 2017 — 30 days after his termination — and the firm paid him for those shares. In addition, it paid Mikelsteins the share bonus for the 2016/17 in early 2018 at the same time as all the other shareholders.
However, the court found that the shareholders’ agreement didn’t include express language referring to “without cause” termination and there was no definition of “termination” in any way. This was likely because the agreement only considered a for-cause termination or an employee leaving of her own accord, not a wrongful dismissal, said the court.
Without clear and specific language, the shareholders’ agreement didn’t oust Mikelsteins’ common law entitlements. As a result, he was entitled his share bonus during the notice period the same as he was his salary and benefits.
Since the share bonus wouldn’t be calculated until after the end of each year, the calculation of the value of Mikelstiens’ shares and share bonus would have to wait until the end of the 26-month notice period in January 2019.
For more information see:
• Mikelsteins v. Morrison, 2018 CarswellOnt 19420 (Ont. S.C.J.).