Can an employer rely on exclusion clauses to escape liability after deliberately mistreating and constructively dismissing an employee?
Four (4) years ago, the Supreme Court of Canada issued its decision in Bhasin, which recognized an “organizing principle of good faith” in contractual relationships: where a defendant is dishonest in the performance of a contract, it is liable for damages calculated on the basis of what the plaintiff’s economic position would have been had the defendant acted in good faith. Bhasin was a purely commercial matter, and, for employer and employee-side counsel alike, the implications of that “organizing principle” remain unclear.
Fortunately, the Supreme Court of Canada announced that it will hear an employee’s appeal from the Nova Scotia Court of Appeal in Matthews v Ocean Nutrition Canada Ltd. Mann Lawyers LLP is watching this case carefully, as the appeal has the potential to have a significant impact on wrongful dismissal litigation.
Mr. Matthews worked for Ocean Nutrition (the “Company”) for 14 years as a very senior chemist. During the tail end of his tenure: Matthew’s boss, Daniel Emond:
- Changed the reporting structure and lied to him about it;
- Excluded him from major initiatives;
- Refusing to talk to him about major problems;
- Recommended that his department be disbanded;
- Lied to him about a potential sale of the company;
- Lied about plans for his termination;
- Had “no qualms about leaving [him] in a state of anxiety about his future”; and
- Restricted his duties to two hours’ work per day.
Mr. Matthews resigned and sued for wrongful dismissal and the loss of an incentive plan. That plan stated that he would receive a sizeable chunk of the proceeds of the sale of the Company if it occurred while he was employed. Mr. Matthews would not be entitled to anything if he were not employed on the date of the sale. Following his resignation, the Company was sold. Matthews’s share would have been worth $1.1 million.
At trial, Mr. Matthews was found to have been constructively dismissed and entitled to 15 months’ pay in lieu of notice. He was awarded more than one million dollars, most of which was related to the incentive plan. According to the judge, if the Company had acted in good faith, and, had Mr. Matthews remained employed throughout the notice period as a result, his right to that share of the company would have materialized. The Company appealed. The majority of the Nova Scotia Court of Appeal found that the plan, by its wording, prevented Mr. Matthews from recovering any money, because he needed to be “actively employed” at the time of the sale. Justice Scanlan disagreed. In his view, there ought to be consequences for an employer which acts dishonestly performing the contract.
The Company employed deceit and falsehood in order to get Mr. Matthews to resign before he could realize the benefits of the incentive plan. Does it make good legal sense to allow the Company to rely on its contract to escape liability in these circumstances?
What about freedom of contract? Mr. Matthews agreed that he had to be employed in order to benefit from the incentive plan. Does it make good legal sense to allow him to benefit from that plan when he was no longer “actively employed” despite his agreement?
The employment group at Mann Lawyers LLP hopes that the Supreme Court of Canada will answer all these questions and more. We will keep you posted as this matter comes up for appeal.