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Discretionary Bonuses Have To Be ‘Fair And Reasonable’ – Employee Benefits & Compensation



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$577 Bonus Changed to $115,000 by Appeals Court

MacDonald & Associates is proud to report on yet another of
its recent successes following the precedent setting decision of
Maynard v. Johnson Controls Canada, 2022 ONSC
3863,
which was argued by Natalie MacDonald and Chris
Randall.

In this case, the first of its kind in Ontario, the Superior
Court held that an employee who was terminated without cause from
his employment of 14 years was entitled to all RSUs awarded to him
during his employment, regardless of their vesting date, marking a
significant departure from earlier case law that limited a
terminated employee’s entitlement to only those RSUs that
vest within the statutory or reasonable notice period.

The Court also held that it was unreasonable for Mr.
Maynard’s employer to make a payment at the time of
termination conditional upon signing a release under circumstances
that would force the employee to accept the employer’s
calculation as a condition of receiving the compensation, when the
amount had yet to be agreed upon between the parties.

Background Facts

Mr. Maynard was 40 years of age and had been employed with
Johnson for 14 years when his employment was terminated without
cause in June 2018.At the time of Mr. Maynard’s termination,
he held the most senior position in the company as Region Vice
President and General Manager of Canada.

In 2016, when Mr. Maynard executed the employment contract
setting out the terms of his employment, the employer sought to
limit his compensation upon termination to only his minimum
statutory entitlements.

Any further entitlements, including a 56-week contractual notice
period, was dependent upon Mr. Maynard signing a release, a copy of
which was not included for his review

at the time of executing the employment contract.

In 2018, when Mr. Maynard was ultimately terminated, Johnson
provided him with a termination letter that included an offer
equivalent to 8 weeks’ pay in lieu of notice and 14.3 weeks
statutory severance as provided by the Ontario Employment Standards
Act, 2000, along with medical and dental benefits for eight
weeks.

Johnson also offered to pay Mr. Maynard $225,135.12 (less
deductions and withholdings), which it said was the equivalent of
the 56-week contractual notice period under the employment
contract, along with extended health and dental benefits for the
same period, but only if he signed a multi-page release, now
attached as part of the termination letter and available for Mr.
Maynard to review for the first time.

Mr. Maynard understood from the termination letter that the
amounts proposed were based only on his base salary. In other
words, Mr. Maynard would not receive his bonus or the value of the
RSUs that had been awarded to him in 2016 and 2018, which
constituted about 37% of his annual compensation package. Under
these circumstances, Mr. Maynard refused to sign the release and
instead commenced litigation.

The Superior Court’s Findings

One of the two issues before Regional Senior Justice MacLeod on
summary judgment was the question of whether Mr. Maynard’s
employment agreement clearly limited his right to compensation
during the 56-week contractual notice period to salary alone.

The second issue dealt with whether by refusing to sign the
release, Mr. Maynard had forfeited his right to the contractual
56-weeks’, which Johnson took the position he had.

  1. Mr. Maynard’s Employment Agreement was not Sufficiently
    Clear

In respect of the first issue, the Court found that the
forfeiture provisions contained in the RSU Share Plan were never
brought to Mr. Maynard’s attention as they had been in the
case of Battiston v. Microsoft Canada Inc., 2021 ONCA 727. The
Court further held that even if the forfeiture provisions in the
Plan had been brought to Mr. Maynard’s attention, they
contained an ambiguity because a “committee” had the
discretion not to forfeit the RSUs so long as the dismissal was not
for cause.

Moreover, in holding that the relevant termination clause in Mr.
Maynard’s employment agreement was not sufficiently clear to
limit his right to compensation to the amounts offered by Johnson
upon termination, Justice MacLeod found:

“[t]here is no doubt the language could be
clearer.”

Instead of using clear language to limit its liability to the
salary portion of Mr. Maynard’s remuneration during the
statutory notice period, employer included three dense and lengthy
paragraphs that used the terms “wages” and
“salary” interchangeably, which would only have been
comprehensible if carefully reviewed with a lawyer.

The Court concluded therefore that Mr. Maynard’s
entitlement to compensation for termination without cause should
not only have included salary, benefits, and his bonus, but more
importantly, the value of the RSUs, which the Court agreed had
already been earned when granted during his employment,
irrespective of when they vested, which occurred outside of the
56-week contractual notice period established by Mr.
Maynard’s employment contract.

  1. Mr. Maynard did not Forfeit his Right to the Contractual Notice
    Period

In respect of the second issue, the Court held that it would be
unreasonable to make a payment conditional upon signing a release
that the employee had never seen in light of His Honour’s
determination that the amount of compensation Johnson had offered
Mr. Maynard over the 56-week contractual notice period was in
error. In this regard, Justice MacLeod held: “It is one thing
to insist upon a release once the amount has been agreed upon. It
is quite another to draft a contractual provision that requires the
employee to accept the employer’s calculation as a condition
of receiving compensation.1

Damages

In addition to the minimum amounts required under the Employment
Standards Act, 2000, the Court found that Mr. Maynard was also
entitled to the additional payment of the 56-week contractual
notice period under his employment contract, the value of all RSUs
that had been awarded and then forfeited upon his termination,
including those beyond the 56-week contractual notice period, the
value of his benefits, and the value of his bonus, for a total sum
of $427,891.18.2

Key Take-Away

Justice MacLeod’s decision in Maynard set a precedent in
Ontario by sending a clear message to employers that unless there
is clear limiting language in an employment contract that
explicitly excludes an employee’s entitlement to RSUs upon
termination, the employee is entitled to all of the RSUs granted
during the course of employment upon termination, regardless of
when the RSUs vest. In Maynard, the employee’s entitlement to
RSUs included those that vested over a 128-week period,
irrespective of whether it exceeded the contractual notice
period.

In other words, unless there is clear limiting language to the
contrary, RSUs that are granted to an employee throughout
employment are earned, and something to which the employee is
entitled upon termination.

Additionally, the Court established the fact that an employer
does not have the right to force an employee to sign a release that
she/he has never seen and accept the employer’s calculation
as a condition of receiving compensation, when the amount is in
dispute.

As such, this case not only provides instruction to employers,
but equally, assists employees seeking to challenge limiting
provisions and identify ambiguities in their employment
contracts.

Footnotes

1 Maynard v. Johnson Controls Canada, 2022 ONSC 3863, at
para. 27.

2 The correct damages calculation is $433,456.26. Justice
MacLeod’s damages calculation was based on the total amount
of Mr. Maynard’s 52-week and 56-week bonus entitlement, as
opposed to his 56-week bonus entitlement

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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