Matthews v Ocean Nutrition Canada Ltd., 2020 SCC 26

By: Richard E. Harrison, Wilson Laycraft
Originally published October 28, 2020

The Supreme Court of Canada in Matthews v Ocean Nutrition Canada Ltd. (“Matthews”) was asked to determine a terminated employee’s entitlement to a significant bonus payment under a Long Term Incentive Plan (“LTIP”). The Plaintiff argued he was entitled to the bonus a) by virtue of his entitlement to damages that would have accrued during the applicable notice period and b) because his employer breached its implied duty of good faith.

The Court held that it was not required to decide on whether a breach of an employer’s duty of good faith would entitle a Plaintiff to damages akin to wrongful dismissal. The Court reasoned that the Plaintiff was prima facie entitled to the bonus payment because it would have been awarded to the Plaintiff during the Plaintiff’s notice period.

Matthews at para 6

The reason the Matthews decision is of such import is because the Court held that the Plaintiff remained entitled to his bonus despite contractual language that purportedly limited his entitlement should he no longer be a “full time employee”. The decision sets an exceptionally high standard for the enforceability of contractual provisions limiting employees’ rights to entitlements during their applicable notice period.

Matthews at para 63

The Court applied a two-step analysis to determine whether the Plaintiff was entitled to his bonus.

First, it considered whether the Plaintiff would have been entitled to the compensation claimed had he continued to be employed, and thus should prima facie receive it during the notice period. The Court found that the LTIP bonus would have ordinarily been paid, but for the Plaintiff’s constructive dismissal.

Matthews at paras 56, 59 – 60

On the second stage of the analysis, the Court analyzed whether the contractual terms purportedly disentitling Mr. Matthews to his bonus did so unambiguously.

In Matthews, the Plaintiff signed the LTIP bonus plan (see Matthews v. Ocean Nutrition Canada Ltd., 2017 NSSC 16 at paras 2 and 58), and the clauses associated with that plan are not nearly as complex as other clauses limiting an employee’s entitlement. The key exclusion terms read as follows:

2.03 CONDITIONS PRECEDENT:

ONC shall have no obligation under this Agreement to the Employee unless on the date of a Realization Event the Employee is a full-time employee of ONC. For greater certainty, this Agreement shall be of no force and effect if the employee ceases to be an employee of ONC, regardless of whether the Employee resigns or is terminated, with or without cause.

2.05 GENERAL:

The Long Term Value Creation Bonus Plan does not have any current or future value other than on the date of a Realization Event and shall not be calculated as part of the Employee’s compensation for any purpose, including in connection with the Employee’s resignation or in any severance calculation.

Despite the readability of the clauses disentitling the Plaintiff to his bonus post-termination, the Court concluded they were not sufficiently clear and unambiguous to remove the right to collect LTIP benefits during the notice period:

[65] To this end, the provisions of the agreement must be absolutely clear and unambiguous. So, language requiring an employee to be “full-time” or “active”, such as clause 2.03, will not suffice to remove an employee’s common law right to damages. After all, had Mr. Matthews been given proper notice, he would have been “full-time” or “actively employed” throughout the reasonable notice period (Paquette, at para. 33, citing Schumacher v. Toronto-Dominion Bank (1997), 1997 CanLII 12329 (ON SC), 147 D.L.R. (4th) 128 (Ont. C.J. (Gen. Div.)), at p. 184; see also para. 47; Lin, at para. 89). Indeed, the trial judge and the majority of the Court of Appeal agreed that an “active employment” requirement is not sufficient to limit an employee’s damages (trial reasons, at para. 398; C.A. reasons, at para. 66).

[66] Similarly, where a clause purports to remove an employee’s common law right to damages upon termination “with or without cause”, such as clause 2.03, this language will not suffice. Here, Mr. Matthews suffered an unlawful termination since he was constructively dismissed without notice. As this Court held in Bauer v. Bank of Montreal, 1980 CanLII 12 (SCC), [1980] 2 S.C.R. 102, at p. 108, exclusion clauses “must clearly cover the exact circumstances which have arisen”. So, in Mr. Matthews’ case, the trial judge properly recognized that “[t]ermination without cause does not imply termination without notice” (para. 399; see also Veer v. Dover Corp. (Canada) Ltd. (1999), 1999 CanLII 3008 (ON CA), 120 O.A.C. 394, at para. 14; Lin, at para. 91). Yet, it bears repeating that, for the purpose of calculating wrongful dismissal damages, the employment contract is not treated as “terminated” until after the reasonable notice period expires. So, even if the clause had expressly referred to an unlawful termination, in my view, this too would not unambiguously alter the employee’s common law entitlement.

[67] I therefore agree with the trial judge that clause 2.03 does not unambiguously limit or remove Mr. Matthews’ common law right. In my respectful view, the majority of the Court of Appeal erred in concluding otherwise.

Matthews at paras 61 – 67

Employers may wonder what exclusion language could be enforceable if the wording in Matthews was not.

It should be noted that the decision in Matthews carves out an exception for contracts that “could affect many people”, instead of those that may just affect “a limited number of executives”, as was the case in Matthews. What constitutes “many people” was not canvassed by the Court and will likely lead to further judicial consideration.

The decision in Matthews will undoubtedly have far reaching consequences on bonus plans of all varieties. The high standard that employers must meet to disentitle employees from those benefits may have a significant impact on settlements and litigation involving plans currently in place. The decision is another in a long line of cases where the Court has solidified employees’ rights.