Investment banker awarded $400,000

When it comes to bonuses, employers can exercise discretion — as long as it’s fair and reasonable, says court

Frederick Chann was an investment banker for RBC Dominion Securities Inc. He was 38 when terminated without cause in September 2002. He rejected a lump-sum severance offer of $325,000 plus a $53,009 bonus and continuation of his benefits for seven months. He filed an action seeking damages in lieu of reasonable notice and an amount that would represent appropriate remuneration up to the date of termination.

Chann had worked in a number of positions of responsibility between 1992 and 1999. He was well-liked, loyal, conscientious and competent. In 1999 he transferred to a specialized group within investment banking. Towards the end of that year concerns were first voiced about his business development skills as investment bankers are expected to originate new business and leave the transaction business to younger members of the firm.

Towards the end of 2000 Chann’s supervisor, Graham MacMillan, told a colleague he felt Chann was not adequately performing his business development tasks, that there were other individuals who were more sales-oriented and that he wanted one of them to replace Chann. A year later this message was relayed to Chann. The situation continued that way until 2003 when MacMillan, believing there were other individuals who were capable of growing the retail structures products business more quickly than Chann, pushed for him to be replaced.

Both parties agree Chann was terminated without cause so the main issues before the court were the remuneration he was entitled to in 2002 up to the date of his termination, the period of notice to which he was entitled and the compensation to which he was entitled in lieu of receiving such notice.

The Ontario Supreme Court of Justice ruled there was no question Chann’s employment arrangement contemplated a bonus as a regular and significant component of his annual compensation.

Although Chann had signed an agreement with RBC Dominion Securities that specified that “any decision regarding an employee’s participation in bonus pools, as well as the payment and amount of all bonuses is wholly discretionary,” the court ruled this discretion must be exercised in a fair and reasonable manner. Fairness and reasonableness is implied in the employment agreement, and it exists throughout the employment relationship, ruled the court.

The company had paid Chann $125,000 from its bonus pool for the 2002 fiscal year. The court concluded that even though the company had made the decision to terminate Chann’s employment, it still needed to approach the decision-making process on the bonus as it had done in past years and as it had done with other employees. The court ruled, furthermore, that RBC had not acted fairly and reasonably when it determined Chann’s activities in 2002 did not warrant a higher bonus. The court awarded Chann an extra $62,713.

The court also determined Chann was entitled to reasonable notice to seek a position commensurate with his level of expertise and skill and is not obligated to seek a lesser paying position in another banking firm until he has completed a reasonable search for comparable employment. The court found 12 months’ notice was appropriate and fixed the amount at $388,898. The investment banking business is subject to fluctuations, ruled the court, but it was reasonable to hold that earnings in 2003 would not differ greatly from those of 2002.

The court awarded Chann vacation pay of $5,017, and also nominal mitigation expenses. All told, after deducting what he had already received, the court awarded him $414,145 plus interest.

For more information see:

Chann v. RBC Dominion Securities Inc., 2004 CarswellOnt 3341 (Ont. S.C.J.)

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