Appeal Court Upholds Award of Damages to Wrongfully Dismissed Executive for Loss of Employee Shareholder Bonus and Value of Shares
June 12, 2014
An employee employed by an engineering company for 18 years was terminated for just cause without notice in November 2010 for improper expense claims. The Supreme Court of British Columbia found that the employee was wrongfully dismissed and awarded the employee 18 months’ pay and benefits in lieu of reasonable notice, including an annual bonus and shares enjoyed by the employee as a shareholder which would have continued during the notice period. The Court held that the employee’s status as shareholder and employee were intertwined and that it was “an implied term of the employment contract” that the employee would be entitled to share in the benefits accruing to shareholders during a period of reasonable notice.
The employee’s Shareholders Buy/Sell Agreement (BSA) contained a clause which gave the employer a right to buy back a shareholder’s shares within 60 days of him ceasing to be an employee. Notwithstanding the terms of the BSA, the trial judge ordered the employer to purchase the employee’s shares at their value as at the end of the 18 months’ notice period on the basis that the measure of damages for breach of an employment contract is what the employee would have received if the contract had been performed according to its terms.
On appeal to the British Columbia Court of Appeal, the Court dismissed the employer’s appeal on the grounds that the shares should have been valued as at the day of termination and that the employee should not have been awarded damages for the loss of bonus; and also dismissed the employee’s appeal on the grounds that the shares should have been valued as at the age of sixty-one; the date upon which the BSA required an employee to start divesting shares.
However, in doing so, the Court of Appeal held that the trial judge had erred in holding that the employee was entitled to share in the benefits accruing to shareholders during the period of notice by virtue of an “implied contractual term of the employment agreement”. Rather, it held that the employee was entitled to “the benefits he would have received if he had remained as an employee until the expiration of a period of reasonable notice”, including participation in the bonus pool and the retention of shares. However, the trial judge’s error was not seen to impact upon the correctness of the trial judge’s judgment or the damages awarded.
The finding by both the trial judge and the Court of Appeal to include the bonus and share value in the wrongful dismissal damage award is consistent with the jurisprudence. Absent clear and unambiguous language to the contrary, where the bonus scheme is an integral part of an employee’s compensation structure such that it gives rise to a reasonable expectation and where the employee’s shares are those to which he would have continued to be entitled during the notice period, a wrongfully dismissed employee will recover damages for their loss.