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What will the Supreme Court of Canada say about employers’ good faith obligations to employees and how it applies to circumstances where an employee is forced to leave their employment? 

We will find out soon, as the Supreme Court of Canada will soon release a decision with the potential to significantly change the law surrounding the interpretation of contracts between employers and employees and associated liability in the case of wrongful dismissal and constructive dismissal.

Action for Wrongful Dismissal

In June 2011, Mr. David Matthews was forced to resign from Ocean Nutrition Canada Limited following continuous lies and deception made by his boss, Mr. Daniel Emond. Mr. Emond’s conduct minimized Mr. Matthews’ influence and participation in the company, effectively changing the substantial terms of the employment contract. The conduct ultimately led to Mr. Matthews’ constructive dismissal.

Mr. Matthews sued Ocean Nutrition for wrongful dismissal, seeking damages for breach of his employment contract, including the loss of a Long-Term Incentive Plan (LTIP). Both the trial judge and the Nova Scotia Court of Appeal agreed that the treatment of Mr. Matthews amounted to constructive dismissal and that he was entitled to a termination notice period of fifteen months. However, the Court of Appeal disagreed with the trial judge’s finding that Mr. Matthews was entitled to the LTIP payouts.

Under the LTIP, Mr. Matthews was entitled to receive a portion of the sale proceeds of Ocean Nutrition if the company was sold while he was a full-time employee. However, if Mr. Matthews’ employment was terminated, regardless of whether he resigned or was terminated with or without cause, he would not have any entitlements.

The trial judge found that had Mr. Matthews not been constructively dismissed, he would have been a full-time employee when the LTIP payouts were made and would be entitled to approximately $1.1 million. Therefore, the court awarded Mr. Matthews the full award as if he has been working with the company at the time of the sale.

The Court of Appeal disagreed on this point and allowed the appeal in part, holding that the contract which denied Mr. Matthews’ right to recovery of the LTIP should prevail since he signed and agreed to this term as a part of his employment. Specifically, the Court of Appeal held that, since Mr. Matthews was no longer an employee of Ocean Nutrition, he was not entitled to the benefits of the LTIP. This decision was appealed and has now been heard by the Supreme Court of Canada. 

Supreme Court of Canada Appeal

The Supreme Court of Canada will determine whether employment law in Canada imposes a duty on employers to carry out their relationships with employees honestly and in good faith.

The Supreme Court’s decision has the potential to have a significant impact on the remedies available to employees. Specifically, if the Supreme Court endorses Mr. Matthews’s argument, the obligation to treat employees in good faith could be applied much more broadly and results in significantly higher obligations for employers. 

In particular, employers would no longer be able to rely on clauses that limit employee entitlement to compensation components such as bonuses and stock options, if it is found that an employer has acted in a bad faith manner.

Sultan Lawyers will continue to monitor the case and will provide further information as it becomes available.  If you are seeking assistance with respect to any employment matters relating to wrongful dismissal, including whether there may be recourse as a result of bad faith conduct or otherwise, please contact Toronto employment lawyers Sultan Lawyers by emailing mlahert@sultanlawyers.com or calling 416-214-5111.


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