July 12, 2017

Alberta Court of Appeal Overturns Trial Court Decision on Good Faith Requirement when Dismissing an Employee without Cause

The Alberta Court of Appeal has rolled back a controversial trial court decision which had applied recent developments in the law to award damages to a dismissed employee for the lost opportunity to earn a payment under a long-term incentive plans (LTIP).

We had previously written about the Albert Court’s ruling in Styles v. Albert Investment Management Corporation, 2015 ABQB 621, as a cautionary tale to employers about making sure to act reasonably in dismissing an employee without cause. The dispute concerned a claim brought by David Styles against his former employer, AIMCO, following his without cause termination.

Styles claimed he was entitled to receive payments under his LTIP at the time of his termination, even though the terms of the LTIP stipulated that participants in the plan had to be “actively employed” to be eligible for a payout, without regard to whether the a terminated employee was receiving compensation in lieu of notice of dismissal.

The trial court agreed, relying on the Supreme Court of Canada’s decision in Bhasin v. Hrynew, 2014 SCC 71, which extended the common law duty of good faith to include an employer’s exercise of discretionary power under an employment contract to dismiss an employee without cause. Styles had argued, successfully, that it was not fair to take advantage of his hard work and then terminate him when the consequence would be his ineligibility for the bonuses under the LTIP. This, he argued failed to meet the minimum standard of honesty required in Bhasin.

The Court of Appeal (2017 ABCA 1) rejected the lower Court’s ruling and specifically rejected the judge’s interpretation of Bhasin’s applicability to LTIP and the exercise of discretionary contractual powers. The Court stated at paragraph 64:

“The principles set out in Bhasin (and any extension of it) do not enable either party to insist on covenants and provisos that are not set out in writing in the agreement, nor do they allow the parties to ignore the plain wording of the agreement. Bhasin does not allow the insertion of provisions inconsistent with the actual terms of the contract. The Long Term Incentive Plan states that the participant must be actively employed on the vesting date… Bhasin does not permit the respondent to simply ignore that provision in the contract because he wishes, with hindsight, that he had made a different bargain.” (emphasis added)

The Court of Appeal held that Styles understood what he bargained for when he agreed to employed with AIMCO and if he had wanted the LTIP plan to be effective in the event that his employment was terminated without cause, it was something he should have negotiated at the outset of the employment.


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