Caution Required When Settling an Employment Dispute

Employment disputes can involve a variety of different areas of the law. Most employment issues revolve around the principles of contract. However, an employment dispute will also often include issues of human rights, insurance, workplace safety and pensions. Compensation for an employee can come from any one, or several, of these areas of the law.

The case of Zelsman v. Meridian Credit Union demonstrates the importance of not focusing on one area of the law while overlooking another. In that case the Plaintiff, who had been dismissed from her employment, applied for long-term disability benefits from her employer’s insurer and also filed a claim against her employer with the Ontario Human Rights Tribunal. The human rights claim was eventually settled. As is typical in such settlements minutes of settlement were signed by both parties. In the minutes of settlement the Plaintiff gave up certain rights in exchange for compensation from her former employer.

After the human rights claim was settled, the Plaintiff continued to advance her application for long-term disability benefits. Eventually, the insurer discovered that the minutes of settlement from the human rights claim specially addressed the Plaintiff’s entitlement to long-term disability benefits. On that basis the insurer denied the Plaintiff’s application for long-term disability benefits. The Plaintiff brought a motion disputing the insurer’s position but was unsuccessful. The court concluded that the minutes of settlement from the human rights dispute prevented the Plaintiff from making a claim for long-term disability benefits.

This case is an example of that fact that an employee may have multiple overlapping rights and the consequences of settling one dispute before another may not always be clear.

Frequently Asked Questions

What is "just cause" in employment law?

Last month local newspapers reported the case of a McDonald’s employee in Kanata who was dismissed after receiving poor performance reviews. The employee received more than $100,000.00 in court. Why?

‍The short answer is that the judge in this case found that although the employee’s performance was not perfect the employer did not have “just cause” to terminate her employment contract. If a business chooses to dismiss an employee the employer has to first decide if they have just cause to end the contract or not. Just cause exists when an employee has committed a serious breach of contract such as theft or continually missing work without reason. If the employer does not have just cause then in most cases they have to provide compensation which can equal up to a month of salary for every year of the employee’s service.

Many employers have staff who they believe are poor performers. Performance reviews are often done to encourage better performance but may also be an attempt to build a case for a just cause dismissal. After several poor performance reviews an employer may choose to dismiss an employee for just cause. However, a decision to terminate an employee for just cause can be challenged in court where employers often find it difficult to prove that the alleged breach of contract was serious enough to warrant a just cause dismissal. Poor performance reviews may show that an employee was less than perfect but this alone is usually not enough to disentitle them to some compensation when they are dismissed. Because compensation is typically based on the number of years the employee has worked, the amount owing to dismissed employee can be significant which is what occurred in the case of the former McDonald’s employee.

Can an employee be forced to forfeit their unvested shares on a termination without cause?

I was fired without cause. What happened to my company shares or stock options?

Your job was just terminated "without cause" and as if it's not bad enough that you just lost your job, you also find out that your shares in the company are no longer yours. Just like they never existed, any unvested shares are forfeited the day you're terminated. For some, this could mean hundreds of thousands of dollars in expected income gone.

So what does "vesting" mean and why is it important in this context? An unvested share simply means that the shareholder's rights to that share is subject to specific conditions. Companies will typically create vesting schedules for the shares they give their employees. The shares are provided to the employee subject to a share agreement which sets out the vesting schedule. That schedule will tell the employee when his/her shares will vest. Once the shares vests, the employee has an absolute right to these shares. They can be sold or kept at the discretion of the employee.

Vesting schedules are extremely useful and can be justified. The logic behind a vesting schedule holds that employees must earn shares that are available to them. The longevity of their employment should be correlated to their performance. If they perform well, their job will remain secure and their shares will vest with time. The vesting schedule dangles the possibility of added income in front of the employee to motivate good performance.

Employers should have the right to motivate their employees in this manner and an underserving employee should not be rewarded with income that was subject to him or her deserving it. Any employee who has justified a termination for cause, should not benefit from the vesting of unvested shares.

The dispute arises when the employee's performance is not at issue. The employee worked hard for the company and did nothing to jeopardise his or her rights to the unvested shares. We know that the employee can still be terminated without cause since no employer is handcuffed to their employees. The dilemma is whether or not that employee should have some right to his or her unvested shares.

Companies can squash any right the employee might have to unvested shares by contracting accordingly. Provisions in the share agreements or long term incentive plans, if they are sufficiently clear, can restrict the rights of the employee to unvested shares no matter if the employee is terminated for cause or without cause. Think of the following scenario:

Your employment is going extremely well. You've just received a promotion and your performance reviews are great. You're then terminated without cause. You're terminated in August. Before being terminated, you held 500 unvested shares in the company valued at $400.00 a share. Based on your vesting schedule, 50% of those shares were to vest in October that same year.

The shareholder's agreement holds that all unvested shares once terminated, notwithstanding cause, would be forfeited immediately. Remember you did nothing to merit your termination. Notwithstanding, your company has terminated you. Had they kept you for another two months, you would have had access to $100,000 worth of shares on top of your current income.

This does happen and, with the rise in e-commerce and proficiency in which new companies make public offerings, courts are now seeing a rise in cases where these types of employee shareholder agreements are in dispute.

The Ontario Court of Appeal (ONCA) has recently addressed a similar scenario in O'Reilly v. IMAX Corporation, 2019 ONCA 991. O'Reilly brought a wrongful termination claim alleging that he was not provided sufficient notice and that his unvested shares were unlawfully forfeited. On a summary judgement motion, O'Reilly was awarded 24 months' reasonable notice. The main issue before the ONCA was whether or not the motions judge was correct in awarding damages for shares that would have vested during the notice period.

The ONCA looked closely at the relevant provisions within the employer's long-term incentive plan and stock option grants. The following provision was highlighted:

(5) Termination of Employment Generally. In the event that the Participant’s employment with the Company terminates for any reason other than death, Disability or for Cause, the Options shall cease to vest, any unvested Options shall immediately be cancelled and revert back to the Company for no consideration and the Participant shall have no further right or interest therein. Any vested Options shall continue to be exercisable for a period of thirty (30) days following the date of such termination; … To the extent that any vested Options are not exercised within such period following termination of employment, such Options shall be cancelled and revert back to the Company for no consideration and the Participant shall have no further right or interest therein.

The Court set out to determine whether the words "terminates for any reason" included termination without cause. The ONCA emphasized the need for clarity in these types of provisions. It agreed with the motion judge "that the reference to terminates for any reason in the plans could not be presumed to refer to termination without cause."

O'Reilly was awarded the entirety of his shares throughout his notice period, valued at what they would have been had he sold them immediately upon vesting. O'Reilly had upwards of 30,000 shares valued between $20-$30 that would have vested during the 24 months' notice. The motion judge's decision on the unvested shares and the ONCA's subsequent dismissal made a difference of upwards of half a million dollars in the overall damages awarded to O'Reilly.

WHAT DOES THIS MEAN FOR EMPLOYEES AND EMPLOYERS?

FOR EMPLOYEES: Do not walk away from your unvested shares without consulting an employment Lawyer. You could be leaving significant entitlements on the table.

FOR EMPLOYERS: Any attempt to limit the common law entitlements of an employee should be clear and unequivocal. Do not assume that general language, meant to encompass all, is sufficient to address one specific scenario. It is best to identify the entitlement within the provision and address it accordingly. Contracts must be drafted with specific consideration to the employer, their employees and the market. Boilerplate contracts leave unintended openings to employees and may significantly hamper the economic status of a company when it attempts to restructure and terminate employees.

Sources:

O'Reilly v. IMAX Corporation, 2019 ONCA 991.

O’Reilly v. Imax Corporation, 2019 ONSC 342.

Veer v. Dover Corporation (Canada), 1999 CanLII 3008 (ON CA)

‍

Need an Employment Lawyer? Reach out today. You may be eligible for a no-obligation consultation.

Fired without Cause - Should you take the offer?

I was fired without cause. My employer has given me an offer. Should I take it?

Answer: Employers aren’t handcuffed to their employees. If they act in accordance with their statutory and common law obligations, employers are free to part ways with employees without cause. Typically, the employer is obliged to provide statutory or common law reasonable notice or payment in lieu of notice. Costs, benefits, risks and reward of bringing legal action, should all be considered, prior to starting a claim.

Needlessly pursuing litigation could potentially prejudice the employee. You could delay the settlement and run the risk of losing a fair offer. You may find another job in the weeks following termination. If this happens, then the employer’s settlement may be subject to mitigation which means that they are credited the wages you obtain from that new job. You may also pay more in legal fees then the additional notice you should have received.

There are cases where employees are grossly underpaid when it comes to severance, so I do advocate that everyone who faces termination seek counsel to go over any severance offer. Do not sign it blindly. Speak to a Lawyer and make sure the offer is fair. Employers will often expect and, if prudent, will insist that their past employees reach out to counsel when deciding to sign a severance offer. You should do so as soon as possible after receiving the offer.

Resources:

Need an Employment Lawyer? Reach out today. You may be eligible for a FREE no obligation consultation.