The Limits Of Matthews: Ontario Courts Provide Guidance On A Terminated Employee's Equity Entitlements

• Published date: 21 April 2021
• Subject Matter: Employment and HR, Contract of Employment, Unfair/ Wrongful Dismissal, Employee Benefits & Compensation, Employee Rights/ Labour Relations
• Law Firm: Stikeman Elliott LLP
• Author: Ms Lucy Carruthers

As discussed in our previous post, the Supreme Court of Canada ("SCC") recently affirmed that, upon a termination without cause, employees are prima facie entitled during their reasonable notice period to any income, benefits or bonuses that were part of their compensation, and will therefore be entitled to damages for the loss of such compensation, unless the terms of the employment contract or bonus/benefit plan unambiguously take away or limit that entitlement: Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26 ("Matthews").

Two recent Ontario cases provide clarity for employers as to (a) what equity entitlements are considered income, benefits or bonuses for the purpose of this test, and (b) what language is sufficiently clear and unambiguous to take away or limit an employee's entitlement to income, benefits or bonuses during the reasonable notice period.

Shareholdings Are Not Necessarily Employment Entitlements

The decision In Mikelsteins v. Morrison Hershfield Limited, 2021 ONCA 155 ("Mikelsteins") represents the first reconsideration on the issue of termination entitlements in the incentive compensation context by Ontario's Court of Appeal ("ONCA") in accordance with Matthews.

Background

Mr. Mikelsteins (the "Employee") was one of a select group of employees of Morrison Hershfield Limited (the "Employer") who were invited to purchase shares of Morrison Hershfield Group Inc., the parent company of the Employer. The Employee had purchased shares with his own funds during his employment and had shareholdings at the time his employment was terminated without cause. The shareholders' agreement provided for an automatic transfer notice 30 days following the termination of employment (which was not defined) for fair market value, and the shares were repurchased in accordance with these terms.

The Employee then sued the Employer for damages arising from his wrongful dismissal. In 2018, a summary judgment awarded the Employee damages for wrongful dismissal based on a notice period of 26 month and determined he was entitled to:

• continue to hold his shares until the end of his reasonable notice period (meaning the valuation of the shares occurred 26 months following the date of termination), and
• receive damages for the loss of the shareholder bonuses (these were essentially dividends and did not have an individual performance element) that would have been payable during his reasonable notice period.

The Employer appealed the determination regarding the...