Discretionary Bonuses Have to be ‘Fair and Reasonable’
$577 Bonus Changed to $115,000 by Appeals Court
MacDonald & Associates is proud to report on yet another of its recent successes following the precedent setting decision of Maynard v. Johnson Controls Canada, 2022 ONSC 3863, which was argued by Natalie MacDonald and Chris Randall.
In this case, the first of its kind in Ontario, the Superior Court held that an employee who was terminated without cause from his employment of 14 years was entitled to all RSUs awarded to him during his employment, regardless of their vesting date, marking a significant departure from earlier case law that limited a terminated employee’s entitlement to only those RSUs that vest within the statutory or reasonable notice period.
The Court also held that it was unreasonable for Mr. Maynard’s employer to make a payment at the time of termination conditional upon signing a release under circumstances that would force the employee to accept the employer’s calculation as a condition of receiving the compensation, when the amount had yet to be agreed upon between the parties.
Mr. Maynard was 40 years of age and had been employed with Johnson for 14 years when his employment was terminated without cause in June 2018.At the time of Mr. Maynard’s termination, he held the most senior position in the company as Region Vice President and General Manager of Canada.
In 2016, when Mr. Maynard executed the employment contract setting out the terms of his employment, the employer sought to limit his compensation upon termination to only his minimum statutory entitlements.
Any further entitlements, including a 56-week contractual notice period, was dependent upon Mr. Maynard signing a release, a copy of which was not included for his review
at the time of executing the employment contract.
In 2018, when Mr. Maynard was ultimately terminated, Johnson provided him with a termination letter that included an offer equivalent to 8 weeks’ pay in lieu of notice and 14.3 weeks statutory severance as provided by the Ontario Employment Standards Act, 2000, along with medical and dental benefits for eight weeks.
Johnson also offered to pay Mr. Maynard $225,135.12 (less deductions and withholdings), which it said was the equivalent of the 56-week contractual notice period under the employment contract, along with extended health and dental benefits for the same period, but only if he signed a multi-page release, now attached as part of the termination letter and available for Mr. Maynard to review for the first time.
Mr. Maynard understood from the termination letter that the amounts proposed were based only on his base salary. In other words, Mr. Maynard would not receive his bonus or the value of the RSUs that had been awarded to him in 2016 and 2018, which constituted about 37% of his annual compensation package. Under these circumstances, Mr. Maynard refused to sign the release and instead commenced litigation.
The Superior Court’s Findings
One of the two issues before Regional Senior Justice MacLeod on summary judgment was the question of whether Mr. Maynard’s employment agreement clearly limited his right to compensation during the 56-week contractual notice period to salary alone.
The second issue dealt with whether by refusing to sign the release, Mr. Maynard had forfeited his right to the contractual 56-weeks’, which Johnson took the position he had.
- Mr. Maynard’s Employment Agreement was not Sufficiently Clear
In respect of the first issue, the Court found that the forfeiture provisions contained in the RSU Share Plan were never brought to Mr. Maynard’s attention as they had been in the case of Battiston v. Microsoft Canada Inc., 2021 ONCA 727. The Court further held that even if the forfeiture provisions in the Plan had been brought to Mr. Maynard’s attention, they contained an ambiguity because a “committee” had the discretion not to forfeit the RSUs so long as the dismissal was not for cause.
Moreover, in holding that the relevant termination clause in Mr. Maynard’s employment agreement was not sufficiently clear to limit his right to compensation to the amounts offered by Johnson upon termination, Justice MacLeod found:
“[t]here is no doubt the language could be clearer.”
Instead of using clear language to limit its liability to the salary portion of Mr. Maynard’s remuneration during the statutory notice period, employer included three dense and lengthy paragraphs that used the terms “wages” and “salary” interchangeably, which would only have been comprehensible if carefully reviewed with a lawyer.
The Court concluded therefore that Mr. Maynard’s entitlement to compensation for termination without cause should not only have included salary, benefits, and his bonus, but more importantly, the value of the RSUs, which the Court agreed had already been earned when granted during his employment, irrespective of when they vested, which occurred outside of the 56-week contractual notice period established by Mr. Maynard’s employment contract.
- Mr. Maynard did not Forfeit his Right to the Contractual Notice Period
In respect of the second issue, the Court held that it would be unreasonable to make a payment conditional upon signing a release that the employee had never seen in light of His Honour’s determination that the amount of compensation Johnson had offered Mr. Maynard over the 56-week contractual notice period was in error. In this regard, Justice MacLeod held: “It is one thing to insist upon a release once the amount has been agreed upon. It is quite another to draft a contractual provision that requires the employee to accept the employer’s calculation as a condition of receiving compensation.”1
In addition to the minimum amounts required under the Employment Standards Act, 2000, the Court found that Mr. Maynard was also entitled to the additional payment of the 56-week contractual notice period under his employment contract, the value of all RSUs that had been awarded and then forfeited upon his termination, including those beyond the 56-week contractual notice period, the value of his benefits, and the value of his bonus, for a total sum of
Justice MacLeod’s decision in Maynard set a precedent in Ontario by sending a clear message to employers that unless there is clear limiting language in an employment contract that explicitly excludes an employee’s entitlement to RSUs upon termination, the employee is entitled to all of the RSUs granted during the course of employment upon termination, regardless of when the RSUs vest. In Maynard, the employee’s entitlement to RSUs included those that vested over a 128-week period, irrespective of whether it exceeded the contractual notice period.
In other words, unless there is clear limiting language to the contrary, RSUs that are granted to an employee throughout employment are earned, and something to which the employee is entitled upon termination.
Additionally, the Court established the fact that an employer does not have the right to force an employee to sign a release that she/he has never seen and accept the employer’s calculation as a condition of receiving compensation, when the amount is in dispute.
As such, this case not only provides instruction to employers, but equally, assists employees seeking to challenge limiting provisions and identify ambiguities in their employment contracts.
This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice. This publiction is copyrighted by MacDonald & Associates and may not be photocopied of reproduced in any form, in whole or in part, without the express permission of
MacDonald & Associates.
1 Maynard v. Johnson Controls Canada, 2022 ONSC 3863, at para. 27.
2 The correct damages calculation is $433,456.26. Justice MacLeod’s damages calculation was based on the total amount of Mr. Maynard’s 52-week and 56-week bonus entitlement, as opposed to his 56-week bonus entitlement