In the case Matthews v. Ocean Nutrition Canada Ltd, an employee sued the company for “constructive dismissal and claimed damages for lost participation in the company's Long-Term Incentive Plan.” According to the plaintiff, his resignation was caused by his marginalization within the company, which prevented him from benefitting from the Plan that would have been activated in the event of a sale of business. Both the trial judge and the Court of Appeal held that the employee had been constructively dismissed and set the notice period at 15 months, with the payment of the respective damages. However, the two Courts did not concur when considering the lost participation in the Plan, given that the company was actually sold shortly after the employee resigned.   

The Supreme Court, with its decision of 9 October 2020, considered whether the reasonable notice period should include damages for lost participation in the Plan. To define the amount of damages in case of lost bonuses or benefits, the Court considered two questions:  

• “Would the employee have been entitled to the bonus or benefit as part of his compensation during the reasonable notice period? 
• If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right?” 

The Court argued that “an ‘active employment’ requirement is not sufficient to limit an employee’s entitlement to damages”. This means that the conditionality of being an actual employee of the company on the date of payment was insufficient to limit his right to the bonus.  

The Court held in addition that “a clause purports to remove an employee’s common law right to damages upon termination ‘with or without cause’, [...], this language will not suffice.”  

On this basis, the Court concluded that the employee was entitled to receive damages equal to what he would have received pursuant to the Plan. 

In doing so, the Court clarified that employers must have very strong, unambiguous language in a bonus plan or employment agreement to limit an employee’s entitlement to bonus payments that would ordinarily be paid during the reasonable notice period. 

Therefore, employers will have to reconsider the provisions contained in the employment contracts and incentive plans to ensure that there is absolute clarity on employees’ entitlement to bonuses, even during the notice period.