Court Of Appeal Upholds Dismissed Employee's Right To Damages For Value Of Incentives That Would Have Vested During Reasonable Notice Period

Whether a wrongfully dismissed employee is entitled to damages as compensation for the value of incentives that would have vested during the reasonable notice period is frequently litigated in Canada.1 In O'Reilly v. IMAX Corporation, 2019 ONCA 991, the Court of Appeal for Ontario upheld a lower court's finding that in the absence of unambiguous contractual language stating otherwise, an employee is so entitled. This decision serves as a reminder for employers to examine their incentive grant documents and other employment agreements to eliminate any ambiguity in incentive entitlement upon an employee's termination.

Background

O'Reilly involved an employee with IMAX Corporation (IMAX) who was a senior sales executive when he was dismissed without cause after 22 years with the company. At the time of his termination, the employee had been granted several awards of stock options and restricted share units (Incentives) that were unvested. The grant documents provided that the Incentives would be cancelled immediately when employment "terminates for any reason." On a motion for summary judgment, the employee sought, among other things, damages for the lost opportunity to exercise his Incentives during the reasonable notice period.

Decision of the Lower Court

The Ontario Superior Court of Justice applied a two-part test to determine whether the employee was entitled to recover damages as compensation for the lost opportunity to exercise his Incentives during the reasonable notice period. According to the test, the court was required to consider:

If the bonus was an integral part of the employee's compensation and thus damages on account of a lost bonus was a component of the employee's common law right to damages for breach of contract; and

Any wording of the bonus plan that unambiguously alters or removes the employee's common law right to damages for a lost bonus: Paquette v. TeraGo Networks Inc., 2016 ONCA 618 at paras. 30-31; Singer, paras. 21-24; Bain v. UBS Securities Canada Inc., 2018 ONCA 190, 46 C.C.E.L. (4th) 50 at para. 9. (para. 55)

The court stated that the Incentives would have vested within the employee's 24-month reasonable notice period had IMAX not terminated his employment; they were an integral part of his compensation and therefore a component of his common law right to damages for breach of contract. The court noted that although the grant documents provided that the Incentives would be cancelled immediately when...