Offices in Ottawa and Perth
(613) 722-1500

CONTACT US (613) 722-1500

Executive Comp: Share Purchase Documents Prevail in Exec Wrongful Dismissal Litigation

Executive Comp: Share Purchase Documents Prevail in Exec Wrongful Dismissal Litigation

By:

Mann Lawyers

Posted July 24, 2019

For many executives, a great portion of their remuneration is derived from company shares. In the context of wrongful dismissal litigation, the value of those shares can become even more contentious than claims for pay in lieu of reasonable notice. Recently, in Mikelsteins v. Morrison Hershfield Limited, the Court of Appeal for Ontario clarified matters for dismissed executives and their former employers. The Court held that in determining the value of shares, lower courts ought to be guided by the share purchase documents, rather general employment law concepts (such as reasonable notice).

Factual Background

MHL is an engineering and construction firm with which the Plaintiff, Mikelsteins, was employed for 31 years. At the time of dismissal, Mikelsteins owned 5,108 shares; the terms of which were governed by a Shareholders’ Agreement. Under the Shareholders’ Agreement, Mikelsteins was entitled to dividends payable in respect of each share, which was determined by the company’s financial success. The amount of share bonus payable depended on the number of shares held. The Shareholder’ Agreement provided for an “Automatic Transfer Notice”, which would apply when Mikelsteins was terminated. If Mikelsteins were to receive such a notice, he would be entitled to “Fair Value” of the shares at the time of termination.

Mikelsteins was terminated without cause and without notice. MHL paid him the value of the shares on the date of his termination: approximately $1 million. Mikelsteins brought a wrongful dismissal lawsuit. The Court awarded him 26 months’ pay in lieu of reasonable notice and determined that Mikelsteins was entitled to hold the shares until the end of the reasonable notice period (i.e. 26 months after termination) and receive damages for the loss of the share bonus that would have been payable during such 26 month period.

MHL appealed successfully. The Court of Appeal stated that the lower court judge improperly conflated Mikelsteins’ entitlement to compensation arising his wrongful dismissal with his entitlements respecting his shares. As Mikelsteins received his shares pursuant to the Shareholders’ Agreement, only its terms could determine his rights with respect to those shares. The Shareholders’ Agreement provided for Mikelsteins’ termination as the triggering event for the process to transfer his shares. Once MHL paid Mikelsteins’ fair value for the shares (approximately $1 Million), he ceased to have any entitlement to dividends, even through the notice period.

The decision brings much needed clarity to this area of executive comp: to determine the value of the shares at the time of termination, Courts will apply the share purchase documents and not allow execs to keep their shares (and corresponding dividends) through the notice period. Though straightforward and logical, the implications of this decision could leave executives vulnerable to abuse tactics. On our reading, by implication, the decision appears to stand for the proposition that an employer could dismiss an executive right before the share price is about to rise so as to deprive her of the benefits of those shares. This decision may be soon altered by the Matthews case about good faith in the employment context, which is now before the Supreme Court of Canada.

If you have questions about shares in the employment context, please contact our employment group.

This blog post was written by Nigel McKechnie, a member of our Employment Law team.  Nigel can be reached at 613-369-0382 or at nigel.mckechnie@mannlawyers.com.

More Resources

Blog |
Employment, Labour, and Human Rights, Commercial Litigation

By: 

Posted May 23, 2023

Both in my commercial and employment litigation practice, I encounter Ontario business owners faced with serious charges laid against them under the Provincial Offences Act[...]
Blog |
Family Law

By: 

Posted May 18, 2023

The recent Supreme Court of Canada decision in Anderson v. Anderson, 2023 SCC 13, provides guidance on domestic contracts and the enforceability of an informal[...]
Blog |
Environmental Law

By: 

Posted May 16, 2023

When many people think of contaminated sites, they think of the usual suspects such as industrial properties and gas stations.  They may not think of[...]
Blog |
Business Law

By: 

Posted May 9, 2023

Often business owners reach a point where they are considering the sale of their business either through the sale of shares or the sale of[...]
Blog |
Family Law

By: 

Posted May 2, 2023

Overview of Tort Claims in Family Matters Tort claims can be made in family law matters, so as to prevent a multiplicity of proceedings and[...]
Blog |
Employment, Labour, and Human Rights

By: 

Posted April 25, 2023

In a case that recently was decided from the Court of Appeal of Ontario called Celestini v Shoplogix Inc., 2023 ONCA 131, the Court had[...]

Subscribe to Our Newsletter

"*" indicates required fields

Name*
Consent*
This field is for validation purposes and should be left unchanged.