OPG exec constructively dismissed in Crown corporation’s restructuring

Court awards 24 months’ notice to executive whose annual bonus was decreased and responsibilities reduced indefinitely

Ontario Power Generation (OPG) constructively dismissed an executive when it decreased his bonuses and reduced his duties indefinitely as part of a restructuring, the Ontario Superior Court of Justice has ruled.

Lawrence Doran, 57, was hired by Ontario Hydro in 1974 and worked continuously with the utility through its 1999 split into Hydro One and OPG, staying with OPG as vice-president of business development. His duties included identifying and developing new opportunities for OPG.

Ontario Hydro had an annual bonus plan for executives based on the performance of the company and the individual executive. If employees opted to participate, their salary would be reduced by five per cent but the potential bonuses could be as much as 40 per cent of salary, depending on the success achieved. Doran participated in the plan with the understanding if it was suspended, it would be replaced by a similar plan to prevent a decrease in total compensation and maintain it at market levels. While the bonus payout varied from year to year, Doran’s overall compensation increased nearly every year.

When OPG was formed, the original plan was replaced with new annual and long-term incentive plans which could be suspended at any time by OPG. However, Doran wasn’t aware of this provision.

In December 2003, OPG underwent a reorganization which changed the reporting hierarchy of the company and halted several projects, including most of those Doran was working on. The entire board of directors was fired and several senior executives were also let go, including the CEO and Chief Operating Officer.

Doran wasn’t fired, but his responsibilities were reduced and the reporting structure changed so he no longer reported to the COO. He was told by his superior he would be “underutilized for the foreseeable future.” The annual incentive plan was capped at a much lower percentage, which reduced his total compensation by 14 per cent. Doran claimed OPG fundamentally breached the contract of employment by diminishing his status within the company and making changes to the incentive plans to which he didn’t agree. He also told the CEO he felt he was being constructively dismissed and was told if he didn’t agree with the changes he could resign or retire.

OPG argued the changes were necessary to ensure the financial viability of the company and the government, who owned it, had ordered an improvement in its efficiency. It said the changes applied to all senior executives, not just Doran. There was no written employment contract which specified his job duties and pay couldn’t be changed.

The court found Doran had not been given documentation of the new incentive plans when OPG changed them and couldn’t have been aware the company was allowed to suspend or terminate them. As a result, it found it was an implied term of employment that he would continue to receive annual bonuses if business targets were met, though OPG could change the targets.

The court also found a reasonable employee would expect the incentive plans would continue and compensation would keep up with the level for executives in the market. “In the context of the history of the corporation and the continuing promises to move the remuneration of the executives to market level, (the incentive clause) would have properly been interpreted to mean that the program could be replaced by something else but not that the program could be terminated in a manner that resulted in an overall reduction in remuneration,” the court said.

OPG was allowed to change Doran’s duties and suspend new projects if necessary and the court accepted he might be underutilized at times. However, it felt reducing his duties “unilaterally and indefinitely” went too far and was not part of the employment relationship.

“When, in 2004, he was no longer looking for projects, his duties were unusually and significantly changed,” the court said. “This was not something that occurred as part of the normal cycle of work in his position.”

However, the change in reporting structure was not a demotion nor did it diminish his status, the court found.

The court ruled the drop in Doran’s total compensation as a result of the changes in the bonus plans and the change in his job responsibilities each weren’t enough to breach the employment contract, but together they constituted a fundamental breach and OPG constructively dismissed him when it implemented the changes. Because Doran had been employed with the company for 30 years, his entire working life, and had little chance to find a comparable position in Ontario, the court awarded him 24 months’ notice, which totaled $698,287 after mitigation income was deducted.

For more information see:

Doran v. Ontario Power Generation Inc., 2007 CarswellOnt 7415 (Ont. S.C.J.).

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