No authority is required for the proposition that the plaintiff should be made whole for all material benefits which would reasonably be expected to have been provided in the period of reasonable notice.

For example, past cases have awarded the value of the loss of a pension vesting in this period, and/or pension accruals, or bonus and commission sums. Similarly, claims have succeeded for lost disability benefits, not simply for the notice period, but to the full extent of the disability period, given a medical illness which had first occurred in this protected period. The claims made for the loss of the value of vested options, and/or options which were due to vest, have followed the same theme.

The precept is firm that the plaintiff will recover that which would have been reasonably expected in the notice period. This was noted in the Clark v BMO appellate decision which follows:

This principle underpins the award of damages for losses in addition to lost income in other instances.  So, for example, in Veer v. Dover (1999), 1999 CanLII 3008 (ON CA), 120 O.A.C. 394, this court ratified the award of damages for unexercised options under a stock option agreement which were found to be available during the notice period, despite a clause in the agreement which provided that the option would be cancelled on termination of employment.  Similarly, in Taggart v. Canada Life (2005), 2005 CanLII 3220 (ON SC), 39 C.C.E.L. (3d) 48 (S.C.), aff’d (2006), 50 C.C.P.B. 163 (C.A.), damages were awarded for the loss of value that would have been added to the employee’s pension had he worked through the notice period.

General Principles

The Supreme Court in Matthews affirmed that the correct approach to apply the plaintiff’s claim is as follows: ¹

1. First, determine whether the sum claimed would have reasonably followed, had the plaintiff been provided fair notice;
2. Secondly, if so, consider whether the constitutional documents, such as the employment contract, or the bonus unambiguously take away or otherwise limit this claim.

This is, of course, not new. This has been the analysis taken for decades.

In assessing the first question, if there is doubt established about whether a discretionary bonus or similar entitlement would have followed in the notice period, then the issue of the “integral test” will apply. The theory of this test is to determine whether or not, the claimed sum was “integral” to the compensation of the plaintiff. It is of no consequence if the bonus sum is not paid annually, but rather accrued annually. ²

If the opposite is true, where there is no such doubt, this issue of the “integral test” will not be required. ³

If the sum claim is found to be integral to the compensation scheme, the employee must yet prove that, given fair notice, they would have earned such sum in this period. The Court of Appeal, a decision made in June of 2021, in Manastersky noted that this is often done by pointing to the history of payment, such as, annual performance bonuses.

The terms of the governing documents, if applicable, must be reviewed to determine whether the employee would likely have met any criteria which had been set out for entitlement. This would be a factual determination in each instance.

In the Matthews case, there was no doubt that the incentive claim fell due within the notice period. The sum claimed was not discretionary. The only issue for debate in this case was whether the terms of the LTIP unambiguously limited or disqualified Matthews’ right to receive this payment.

On this subject, the Supreme Court concluded that to do so, the language of the plan must unambiguously limit or remove the employee’s common law rights. ⁴ ” and that such a term “must be absolutely clear and unambiguous”. This is so, as in Matthews and likely most such incentive plans, the bonus scheme is one not freely negotiated but rather set out in a “unilateral contract”. Such a clause in this context which limits or excludes liability must be subject to the principle of contractual interpretation that such clauses will be “strictly construed”, a concept which applies with “particular force” in this context.

Terms in the plan document requiring “active employment” or that there be “full-time” employment to qualify for such an incentive payment would not meet this test. Similarly, where the clause asserts the right to remove such a claim “with or without cause” will not exempt the claim.

In the Ontario Court of Appeal decision in Manastersky, there was a term in the incentive plan which gave to the employer the right to discontinue the fund which allowed for the bonus sum. It did so during the common law notice period. The employer argued successfully that it had the right to do so, without substituting a comparable benefit.

The majority in the Court of Appeal determined that this issue was specific to this particular fund and once this was wound up, so was any further claim. The issue became whether this claim was “fund specific” and if not, should he then be entitled to a comparable claim.

The dissenting reasons noted that if this benefit was an integral part of his compensation, the issue will be whether he should then be entitled to an equivalent sum once wound up.

However, whether the appellant’s entitlement was “fund-specific” was the question before the court. Under step one, the CIP benefit formed an integral part of the compensation plan. The issue then was whether the appellant was entitled to receive an equivalent benefit once the fund was wound up.

The dissent of Feldman, J.A., noted that there were no terms in the document which unambiguously stated that should the company terminate the CIP, the consequence would be an end of such compensation. The reasons continued to state that just as such clear and unequivocal language be required to remove the entitlement under step 2 of the analysis, then the same test should be applied to altering the “integral test” of part 1.

The dissent accordingly would have denied the employer the right to change the incentive terms within the notice period, as it purported to do:

In this case, there is no language that purports to reduce the appellant’s compensation if the CIP is discontinued (step one), or to limit the appellant’s entitlement because of his dismissal (step two). The language that my colleague focuses on is the right of the respondent to discontinue the plan. That right is merely the right of any business to make business decisions in its own interest. It is not an unambiguous right to also reduce the appellant’s compensation, either while he remains employed or is in the reasonable notice period following the termination of his employment.

A good example of a case applying the test set out in Matthews is seen in an Ontario case decided in November of 2023. ⁵ The words governing entitlement to the bonus required that the plaintiff be employed when the bonus was awarded. It also proposed to disqualify bonus payments where "your employment ends for any reason, whether with or without cause". This language was found to be ineffective in denying the bonus for the notice period. The document failed to unambiguously remove the entitlement to the bonus sum as required by the Supreme Court in Matthews.

A similar conclusion was reached by the Ontario Court of Appeal in October of 2023. ⁶ The claim had been made by the plaintiff for the value of restricted stock units in the notice period. The document dealing with this issue read as follows:

Termination of Employment

For the purposes of the Plan and this Agreement, you shall be considered to be terminated from your employment with IBM or its affiliate on the later of the following dates:

a. The date you cease to provide services to the employer or any affiliated company, regardless of whether such date is the last date upon which the employer is required by common law, agreement, policy, or otherwise to pay you termination pay in lieu of notice of termination of employment; or

b. The date upon which the employer is required by statute (i.e. applicable provincial employment/labour standards legislation) to pay you termination pay in lieu of notice of termination of your employment.

The motions judge applied the above test and concluded that the plan document was ambiguous, a conclusion with which the Court of Appeal agreed:

The inclusion of the phrase “regardless of whether such date” in subsection (a) created uncertainty about when an employee becomes ineligible to participate in the Equity Award and leaves available a reasonable interpretation that eligibility is not extinguished until the end of the notice period at common law.

Incentive Compensation or Dividends?

An important distinction will be drawn between additional compensation paid due to employment status as opposed to that as a shareholder. Should the payments be found to have been made due to the status as a shareholder, there will be no claim for the loss of such sum attributable to the notice period. Such was the finding in a 2021 Ontario decision. ⁷ The plaintiff also submitted that once the company had been sold, which gave rise to the loss of further profit distribution to the shareholders, the company was obliged to provide some form of replacement compensation. This argument was not successful.

Claim for Capital Value of Book of Business

The Court of Appeal considered what was then a unique claim of this nature in a 2018 case. ⁸ The plaintiff was an investment advisor. He recovered at trial, as confirmed on appeal, the value of his “book of business” which had been set at trial as $90,000. This sum was in addition to the award of compensation for the notice period of 18 months.

Clark was fired in early 2004. He had previously bought a book of business from a colleague in September of 2001. The vendor had been terminated which led to the sale of his book. This transaction was approved by the employer as was then the norm.

Upon being advised of his termination, Clark requested more time of active employment to allow him to complete the then contemplated sale of his book to another advisor. Clark had been, prior to termination, in the course of such discussions, as he had wished to turn his part-time business of training young athletes into a fill time affair. He advised the employer that he had discussed the sum of $175,000 for his $42 million book. The defendant representative advised that it was worth in the range of $30,000 to $35,000 and that the termination decision stood.

Following Clark’s termination, BMO sold the book to another advisor for $50,000.

The trial judge found that Clark would have sold the book for $90,000 had been allowed the opportunity to do so. This sum was awarded in addition to the notice claim. The Court of Appeal agreed that the trial judge applied the correct test to establish that which was reasonably likely within the notice period. This was so, notwithstanding the policy of the employer that it was required to approve the sale:

At the time of Mr. Clark’s dismissal, the Bank had a policy that set out when and how an investment advisor who was leaving the brokerage business might “transition” management of his or her Bank client assets to another investment advisor.  The transition policy stipulated that the departing investment advisor had to have an agreement to transition the client assets to a successor investment advisor and that the agreement had to have Bank approval.  The policy set out minimum eligibility criteria and stated that the Bank had the discretion to determine that an investment advisor was not eligible to participate in a transition agreement, even in circumstances where the eligibility criteria appeared to be met.  If Bank approval was obtained, the policy required that the Bank be made a party to the agreement and that all payments under the agreement were to be through the Bank’s payroll system.

[57]         The Bank submits that, in light of the policy, Mr. Clark had no contractual right to enter into an agreement to sell his book of business.  Accordingly, it argues, the proceeds of such an agreement are not a benefit provided by Mr. Clark’s employment contract that was lost by reason of the Bank’s failure to provide Mr. Clark with reasonable notice of termination and he cannot recover damages for them.

[58]         I do not accept this submission.  The fact that Mr. Clark did not have a contractual right to sell his book of business at the time his employment was terminated is not determinative of the matter, in my view.

[59]         Once the trial judge found that Mr. Clark had been wrongfully dismissed, his task was to determine what damage award would put Mr. Clark in the same position he would have been in had he received reasonable notice of termination.

[60]         The trial judge considered the evidence and concluded it was reasonably probable that Mr. Clark would have sold his book to Mr. Leith or Mr. Bontempo had he been given the time in which to do so.  He was also satisfied that there were no proper grounds on which Bank approval could have been withheld.  Finally, he was satisfied that a reasonable price for the sale of the book would have been reached.  Consequently, it was open to the trial judge to find, as he did, that the Bank’s failure to provide Mr. Clark with reasonable notice of termination caused him to lose the opportunity to sell his book of business, a benefit that he would have had during the notice period.

This principle was followed but not applied in a January 2024 trial judgment involving the same defendant. ⁹ Following the Clark decision, BMO NB had set out a policy document on the subject of an advisor selling their book of business, which, in summary, required the advisor to commence retirement. The plaintiff demonstrated that in the normal course of the notice period that she would have been able to complete the sale of her book of business; however, the trial court found that she was not able to satisfy the requirement of her retirement and, for this reason, denied the claim for this loss.

Interestingly, on the facts of this case, the plaintiff had twice bought such “books” from two other advisors prior to this policy being introduced and one further acquisition followed after the policy. She did not argue that the policy document ought not to apply retroactively which was a viable submission.

This issue of a policy document which removes common law rights is reviewed here. It is certainly arguable that such a document must pass the test of contract formulation, including consideration.