



COURT OF APPEAL FOR ONTARIO

CITATION: Paquette v. TeraGo Networks Inc., 2016 ONCA 618

DATE: 20160809

DOCKET: C60757

Simmons, Pepall and van Rensburg JJ.A.

BETWEEN

Trevor Paquette

Plaintiff (Appellant)

and

TeraGo Networks Inc.

Defendant (Respondent)

Andrew H. Monkhouse and Samantha Lucifora, for the
    appellant

Robert Frank and Nicole Marcus, for the respondent

Heard: February 12, 2016

On appeal from the judgment of Justice Paul M. Perell of
    the Superior Court of Justice, dated June 29, 2015, with reasons reported at
    2015 ONSC 4189.

van Rensburg J.A.:

A.

Overview

[1]

The appellant Trevor Paquette (Paquette) worked for the respondent
    TeraGo Networks Inc. (TeraGo) from 2000 until his employment was terminated
    without cause in November 2014. At the time of dismissal, he was 49 years old.
    He was working as Director, Billing and Operations Support Services, and earned
    a base salary and bonuses. After the parties were unable to agree on a
    severance package Paquette sued for wrongful dismissal.

[2]

The appellant brought a summary judgment motion to determine the period
    of reasonable notice and damages, including the issues of compensation for lost
    bonuses and mitigation of damages. The respondent agreed that these issues were
    appropriate for summary judgment.

[3]

The motion judge fixed the reasonable notice period at 17 months, having
    regard to all the circumstances, including the appellants age, specialized
    skills, upper-middle management position, length of service, and the state of
    the economy in Alberta, where he worked. The motion judge awarded damages based
    on the salary and benefits that the appellant would have received during the
    notice period. He rejected the claim for damages for lost bonus payments. He
    found that the appellant had made reasonable efforts to mitigate his damages
    and directed him to account for any mitigation earnings for the balance of the
    reasonable notice period, with such earnings subject to a trust in favour of
    the respondent.

[4]

Paquette appeals. There is only one issue on this appeal  whether the
    motion judge erred in denying the appellants claim for compensation for lost
    bonuses as part of his damages for wrongful dismissal, on the basis that the
    bonus plan required the bonus recipient to be actively employed at the time
    the bonus was paid.

[5]

For the reasons that follow, I would allow the appeal. Briefly, I conclude that the motion judge erred in principle in his approach to the question of whether the "active employment" term in TeraGo's bonus plan excluded compensation for lost bonuses as part of the appellant's wrongful dismissal damages. The appellant is entitled to additional damages for wrongful dismissal equal to the bonuses he would have earned during the 17 months following his termination.

B.

The Bonus Issue

[6]

TeraGos bonus program or plan provided that an employee actively
    employed by TeraGo on the date of the bonus payout was eligible for a bonus
    based on his or her salary. An employee received a bonus if: (a) the employee
    met his or her personal objectives, determined by the manager and approved by a
    vice-president; and (b) TeraGos performance met the corporate objectives set
    by its Compensation Committee.

[7]

Paquette participated in the bonus plan. At first, bonuses were paid
    semi-annually in February and August. In 2014, the plan was amended so that
    bonuses were paid in February of a given year for performance in the prior
    year. Between 2011 and 2014, the appellant received bonus payments totalling as
    follows: $27,814.50 in 2011; $31,832.78 in 2012; $27,932.69 in 2013; and
    $7,841.41 in 2014.

[8]

As part of his damages, the appellant claimed what the motion judge
    described as the average of his annual bonus payments paid by TeraGo: the sum
    of $29,193.32 for 2014 (that would have been payable in February 2015) and an
    identical amount for 2015 (that would have been payable in February 2016).
[1]
If the notice period was fixed at fewer than 17 months, the appellant sought a
    pro-rated bonus for 2015.

[9]

The motion judge concluded that the bonus plan was an integral part
    of Paquettes employment. He also found that, if such employment had
    continued, Paquette would have been eligible to receive a bonus in February
    2015 for 2014. The motion judge did not address whether Paquette would have
    earned a bonus for 2015 had his employment continued until February 2016, which
    was also within the 17 month notice period, however the respondent did not
    seriously contest this point.

[10]

The motion judge, however, refused to award damages for the bonuses Paquette
    would have earned during the reasonable notice period. He relied on the bonus
    plans requirement that an employee had to be actively employed by TeraGo at
    the time the bonus was paid. He stated, at para. 64 of his reasons, that the
    bonus plan was not ambiguous, and that Paquette may be notionally an employee
    during the reasonable notice period; however, he will not be an active
    employee and, therefore, he does not qualify for a bonus.

C.

Positions of the Parties

[11]

The appellant contends that the motion judge erred in law by failing to
    place the appellant in the same financial position he would have enjoyed had he
    been given proper notice of the termination of his employment. The question is
    not whether the appellant would qualify for bonuses after his termination and
    during the notice period, but whether he would have qualified for bonuses under
    his contract had he been given proper notice of his dismissal. His claim is not
    for the bonuses themselves. It is for damages to compensate for the loss of the
    bonuses since he was denied the opportunity to qualify for them because of the respondents
    breach of contract in failing to give adequate notice.

[12]

The appellant asserts that the motion judges interpretation of the
    active employment condition in the bonus plan is contrary to settled
    authority. He refers to the trial decision in
Schumacher v. Toronto-Dominion
    Bank
(1997), 147 D.L.R. (4th) 128 (Ont. Gen. Div.), affd on other grounds
    (1999), 173 D.L.R. (4th) 577 (Ont. C.A.), leave to appeal refused, [1999]
    S.C.C.A. No. 369 and the recent decision of this court in
Bernier v. Nygard
    International Partnership
, 2013 ONCA 780, affirming 2013 ONSC 4578. In
    these decisions, damages for the loss of a bonus, or the opportunity to earn a
    bonus, were awarded or upheld where a bonus plan required that the recipient be
    employed by the employer at the time the bonus was paid or on another specified
    date in the year.

[13]

The appellant asks that this court vary the judgment below to grant him
    damages of $58,386.64 (his calculation of damages for loss of the two bonus
    payments he would have received during the notice period of 17 months).

[14]

The respondent contends that the motion judge applied the correct test,
    which was endorsed by this court in the context of stock options in
Kieran
    v. Ingram Micro Inc.
(2004), 33 C.C.E.L. (3d) 157 (Ont. C.A.), leave to
    appeal refused, [2004] S.C.C.A. No. 423. Because the bonus plan was clear and
    unambiguous in its intention to deprive the appellant of his right to receive a
    bonus unless he was actively employed, a bonus was not properly part of the
    appellants damages for wrongful dismissal. The respondent asserts that the
    motion judges interpretation of the bonus plan is entitled to deference. To
    the extent that the courts in
Schumacher
and
Bernier
interpreted active employment differently, those cases should not be
    followed.

D.

Analysis

[15]

I begin by observing that the motion judges decision is not entitled to
    deference. As I will explain, the motion judge erred in principle in treating
    the issue of whether bonus amounts would be included in the appellants damages
    for wrongful dismissal as a question of whether the active employment term in
    the bonus plan was ambiguous. The motion judge should have determined whether
    the appellants common law right to damages for compensation and benefits that he
    would have earned during the reasonable notice period, including the bonus that
    was part of his compensation package, was effectively limited by the active
    employment condition in the bonus plan. By narrowly focusing his analysis on
    whether the active employment term was ambiguous, the motion judge applied an
    incorrect principle and his decision is reviewable on a correctness standard.
    As the Supreme Court explained in
Housen v. Nikolaisen
, [2002] S.C.R.
    235, at para. 36, where an error can be attributed to the application of an
    incorrect standard, a failure to consider a required element of a legal test,
    or similar error in principle, such an error can be characterized as an error
    of law, subject to a standard of correctness.

[16]

The basic principle in awarding damages for wrongful dismissal is that
    the terminated employee is entitled to compensation for all losses arising from
    the employers breach of contract in failing to give proper notice. The damages
    award should place the employee in the same financial position he or she would
    have been in had such notice been given:
Sylvester v. British Columbia
,
    [1997] 2 S.C.R. 315, at para. 1. In other words, in determining damages for
    wrongful dismissal, the court will typically include all of the compensation
    and benefits that the employee would have earned during the notice period:
Davidson
    v. Allelix Inc.
(1991), 7 O.R. (3d) 581 (C.A.), at para. 21.

[17]

Damages for wrongful dismissal may include an amount for a bonus
    the employee would have received had he continued in his employment during the
    notice period, or damages for the lost opportunity to earn a bonus. This is
    generally the case where the bonus is an integral part of the employees
    compensation package: see
Brock v. Matthews Group Limited
(1988), 20
    C.C.E.L. 110, at para.
44 (Ont. H.C.J.), affd (1991), 34
    C.C.E.L. 50, at paras.
6-7 (Ont. C.A.) (appeal allowed in part on other
    grounds);
Bernier
, at para. 44 (Ont. S.C.), affd, at para. 5 (Ont.
    C.A.). This can be the case even where a bonus is described as discretionary:
    see
Brock v. Matthews Group
, at para.
44 (Ont.
    H.C.J.), affd, at paras. 6-7 (Ont. C.A.).

[18]

Where a bonus plan exists, its terms will often be important in
    determining the bonus component of a wrongful dismissal damages award. The plan
    may contain eligibility criteria and establish a formula for the calculation of
    the bonus. And, as here, the plan may contain limitations on or conditions for
    the payment of the bonus. To the extent that there are limitations, the
    question may arise as to whether they were brought to the attention of the
    affected employees, and formed part of their contract of employment. The latter
    issue does not arise here, however, as the appellant did not dispute that he
    was aware of the plans terms.

[19]

In the present case, the motion judges analysis focused only on the
    wording of the bonus plan. He stated, at para. 64 of his reasons, that there
    was no ambiguity in its terms, and that, although the appellant might
    notionally be an employee during the reasonable notice period, he would not be
    an active employee and therefore would not qualify for a bonus.

[20]

There are two problems with the motion judges approach.

[21]

First, the appellants entitlement to bonus payments in the context of
    the wrongful dismissal action did not depend on whether he was notionally or in
    fact actively employed after his employment was terminated. The issue before
    the court was the determination of his damages, comprised of the compensation
    and benefits to which he would have been entitled but for the wrongful
    termination of his employment. Had the appellant been terminated within the 17
    months reasonable notice fixed by the motion judge, he would have been
    actively employed when the bonuses were paid.

[22]

In
Taggart v. Canada Life Assurance Co
. (2006), 50 C.C.P.B. 163
    (Ont. C.A.), Sharpe J.A. explained the correct approach. In relation to the
    requirement for active service as a prerequisite for the accrual of pension
    benefits, and its impact on wrongful dismissal damages, he stated at para. 16:

Assuming that the pension plans can be read as requiring active
    service as a prerequisite for the accrual of pension benefits, I find
    unpersuasive the argument that this precludes damages as compensation for lost
    pension benefits. This argument, it seems to me, ignores the legal nature of
    the respondents claim. The claim is not  for the [benefits] themselves.
    Rather, it is for common law contract damages as compensation for the
    [benefits] the [employee] would have earned had the [employer] not breached the
    contract of employment. The [employee] had the contractual right to work and to
    be paid his salary and receive benefits throughout the entire  notice period.

[23]

Similarly, in the present case the appellants claim was not for the
    bonuses themselves, but for common law contract damages as compensation for the
    income (including bonus payments) he would have received had TeraGo not
    breached his employment contract by failing to give reasonable notice of
    termination.

[24]

The motion judges next error was in looking to the terms of the bonus
    plan, and its requirement of active employment, and then concluding that
    because that term was unambiguous, and the appellant could not meet the
    requirement, no amount for bonus would be included in his damages. The motion
    judge ought to have commenced his analysis from the premise that the appellants
    common law right to damages was based on his complete compensation package,
    including any bonus he would have received had his employment continued during
    the reasonable notice period, and then examined whether the bonus plan
    specifically limited or restricted that right.

[25]

Again in relation to a claim for pension accrual, Sharpe J.A. in
Taggart
stated at para. 11:

I do not accept the proposition that the [employees] rights
    can be determined by looking only to the terms of the pension plans. His claim
    is not for pension benefits but rather for damages as compensation for the
    pension benefits he lost as a result of the [employers] termination of his
    employment contract.

He observed, at para. 12, that the proper way to
    analyze the employees claim is to consider first his common law right to
    damages for breach of contract, and second, whether the terms of the plan alter
    or remove a common law right.

[26]

The result in
Taggart
was that a requirement for active service
    for the accrual of pension benefits did not preclude damages as compensation
    for the loss of such benefits. Sharpe J.A. observed, at para. 16, that the employee
    had the contractual right to work and to be paid his salary and receive his
    benefits throughout the notice period. When the employer chose to terminate his
    employment and to pay damages rather than permit him to work out the notice
    period, it became liable to pay damages that would place the employee in the
    position he would have been in had the contract been performed.

[27]

Sharpe J.A. explained the role of the wording of the plan as follows, at
    para. 20:

The starting point or base line for analysis is the [employees]
    common law right to damages for the loss of the pension rights he would have
    earned but for the appellant's breach of contract. The question at this stage
    is
whether there is something in the language of the 
    contract between the parties that takes away or limits that common law right
.
    [Emphasis added.]

[28]

He noted that clear language is required in order to take away or limit
    a dismissed employees common law rights. Sharpe J.A. concluded that a
    condition requiring active service as a prerequisite for the accrual of
    pension benefits did not constitute such a limitation.

[29]

In my view,
Taggart
articulates the approach the motion judge
    ought to have followed in this case.

[30]

The first step is to consider the appellants common law rights. In
    circumstances where, as here, there was a finding that the bonus was an
    integral part of the terminated employees compensation, Paquette would have
    been eligible to receive a bonus in February of 2015 and 2016, had he continued
    to be employed during the 17 month notice period.

[31]

The second step is to determine whether there is something in the bonus
    plan that would specifically remove the appellants common law entitlement. The
    question is not whether the contract or plan is ambiguous, but whether the
    wording of the plan unambiguously alters or removes the appellants common law
    rights:
Taggart
, at paras. 12, 19-22.

[32]

In
Taggart
the requirement for active service did not serve to
    contract out of the common law right to accrue pension benefits during the
    reasonable notice period. Other cases dealing with bonuses have reached the
    same conclusion.

[33]

In
Schumacher
, the employees contractual bonus plan contained
    a clause that required recipients to be actively employed by the Bank at the
    time the award is paid to be eligible for payment. The trial judge observed,
    at para. 225 of her reasons, that the employee was unable to comply with the
    active employment requirement because he had been wrongfully dismissed without
    notice. Had Schumacher been given proper notice, then he would have been actively
    employed. As such, he was entitled, as part of his wrongful dismissal damages,
    to compensation for the bonuses he would reasonably have earned during the
    period of reasonable notice.

[34]

In
Bernier
, this court dismissed an appeal from a summary
    judgment award of wrongful dismissal damages that, among other things, included
    an amount for a lost bonus. The bonus plan required the recipient to be
    employed by the appellant on November 30
th
each year. The respondent
    was terminated in December 2012. The appellant paid her bonus for 2012 but
    denied that she was entitled to any bonus thereafter because she was not
    actively employed by the appellant after her termination. The motion judge
    fixed the notice period at 18 months and awarded damages for, among other
    things, the bonus that the respondent would have received on November 30, 2013.
    In dismissing the appeal, this court noted, at para. 5, that where the bonus
    was an integral part of the respondents total compensation package and she
    would have been employed on November 30, 2013 if she had been given proper notice,
    [t]he appellant cannot disentitle the [respondent] to damages for the loss of
    her bonus by reason of its own breach.

[35]

In the present case, as in
Taggart
,
Schumacher
,

and
Bernier,
the requirement for active employment does not prevent the appellant
    from receiving, as part of his wrongful dismissal damages, compensation for the
    bonuses he would have received had his employment continued during the period
    of reasonable notice.

[36]

The respondent refers to the decision of this court in
Poole v. Whirlpool
    Corp.
, 2011 ONCA 808, affirming 2011 ONSC 4100, as authority to the
    contrary. In that case Hoy J. (as she then was), in a summary judgment motion,
    included in a plaintiffs damages for wrongful dismissal the bonus he would
    have received but for the termination of his employment without notice. The
    plan required that employees be actively employed on a specified date to be
    eligible for the bonus. Hoy J. determined that this requirement had not been
    brought to the plaintiffs attention and that there was no evidence that he had
    assented or agreed to it. It therefore could not limit his rights. This conclusion
    was upheld on appeal. Neither court considered the effect of the active
    employment requirement. The case was decided on the basis that this term was
    never communicated to the employee.

[37]

The respondent also asserts that
Kieran
, which was decided
    after
Taggart
and
Schumacher
, mandates a different approach. TeraGo
    says that the motion judge correctly relied on this decision to consider only
    whether the wording in the bonus plan itself was ambiguous (and not whether it
    unambiguously restricted or limited the appellants common law entitlement to
    damages for breach of contract).

[38]

Kieran
is a stock option case. The issue was whether Mr.
    Kierans time for exercising stock options upon the termination of his
    employment was extended by the common law notice period where he had been
    dismissed without cause. The stock option plans provided that he had 60 days
    from the termination of his employment for any reason other than death,
    disability or retirement to exercise any rights then vested. Termination of
    employment was defined as the date the employee ceases to perform services
    for the employer without regard to whether the employee continues thereafter
    to receive any compensatory payments therefrom or is paid salary thereby in
    lieu of notice of termination.

[39]

Lang J.A. explained, at para. 56, that under Ontario law, Mr. Kieran
    would be entitled to damages for the loss of the plans, as they formed part of
    his compensation, absent contractual terms to the contrary. In the presence of
    contractual terms, those terms govern. She then concluded that the plans were unambiguous
    as they specifically provided that Mr. Kierans employment terminated on the
    date he ceased to perform services, without regard to whether he continued to
    receive compensatory payments or salary in lieu of notice. Accordingly, Mr.
    Kierans right to exercise the stock options was not extended by the period of
    reasonable notice. He was not entitled to damages for the stock options.

[40]

Kieran
is one of a number of cases from this court considering the
    exercise of stock options on termination of employment. Like bonus plans, stock
    option plans will contain terms and conditions for eligibility, and both types
    of plans can provide valuable compensation to reward, incent and retain employees.
    Typically, bonuses are in amounts fixed by the employer and based to some
    extent on an employees past performance. With stock options, however,
    employees who hold vested rights are able to exercise their options when they
    see fit to do so, in order to maximize value. The timing of the exercise of an
    option is key to its value to the employee. And stock option plans prescribe
    and limit the timing of the exercise of options, typically including provisions
    for the termination of the options when certain events occur, including
    termination of employment.

[41]

Recognizing that the loss of the right to exercise stock options during
    the notice period is compensable in wrongful dismissal actions, the stock
    option cases have required clear language to limit the right to exercise stock
    options on termination. In a number of cases, the courts have found that the
    time for the exercise of stock options following the termination or cessation
    of employment was extended by the reasonable notice period: see
Gryba v.
    Moneta Porcupine Mines Ltd.
(2000), 5 C.C.E.L. (3d) 43 (Ont. C.A.), leave
    to appeal refused, [2001] S.C.C.A. No. 92 (the effective date of termination
    occurred at the end of the notice period);
Veer v. Dover Corporation
    (Canada) Limited
(1999), 45 C.C.E.L. (2d) 183 (Ont. C.A.) (whether such
    termination be voluntary or involuntary not sufficient to oust presumption
    that termination would be lawful); and
Schumacher
(recovery of damages
    for lost opportunity to exercise stock options was permitted under a phantom
    stock option plan referring to cessation of employment, but not in respect of a
    second plan providing for the exercise of options within 60 days following the
    employees termination without cause). By contrast, in
Brock v. Matthews
    Group
, this court held that there was no recovery of damages for the lost
    opportunity to exercise certain stock options where the plan required the
    exercise of options within 15 days from the date notice of dismissal is
    given.

[42]

The approach in these cases can be summed up in the words of Goudge J.A.
    in
Veer,
at para. 14, the parties must be taken to have intended that
    the triggering actions [for the cancellation of an employees stock option
    rights] would comply with the law in the absence of clear language to the
    contrary.

[43]

In
Kieran
,

Lang J.A. stated that there was no ambiguity
    in the plans at issue. They did not speak only of termination or cessation of
    employment as the triggering event. Rather, the plans anticipated the very
    event that occurred  the termination of employment without just cause or
    notice. In such circumstances, the plans required the employee to exercise the
    options within the allocated time.

[44]

I do not regard
Kieran
as requiring that a different or new
    test be applied to bonus cases. Lang J.A. explained, at para. 56, that the
    employee would be entitled to damages for the loss of the plans, as they
    formed part of his compensation, absent contractual terms to the contrary.
    Without deciding whether the test that applies in stock option cases is the
    same as that applicable in bonus cases, I note the similarity between the
    approach I have set out above and that of Lang J.A., as well as the tests
    adopted in other stock option cases.

[45]

In the present case, although the motion judge referred to the approach
    set out in
Kieran
, he erred in principle by focusing too narrowly on
    the question of whether the term active employment was ambiguous. He should
    have focused on whether the wording of the bonus plan, and in particular these
    words, were sufficient to limit the appellants common law right to
    compensation in lieu of notice. In my view, that is what Lang J.A. did when she
    decided that the employer in
Kieran
had effectively limited the employees
    right to exercise stock options on termination of employment, which would be
    presumptively extended by the notice period, by specific wording that limited
    that right. This is clear when she contrasts, at para. 58, the wording of the
    plan in question with the wording of the phantom stock option plan in
Schumacher.

[46]

In summary, the question in this case was not whether the bonus plan was
    ambiguous, but whether the wording of the plan (which in this case formed part
    of the appellants employment contract) was effective to limit his right to
    receive compensation for lost salary and bonus during the period of reasonable
    notice.

[47]

A term that requires active employment when the bonus is paid, without
    more, is not sufficient to deprive an employee terminated without reasonable
    notice of a claim for compensation for the bonus he or she would have received
    during the notice period, as part of his or her wrongful dismissal damages.

[48]

Finally, although the parties briefly addressed the issue, it is
    unnecessary to consider the effect of s. 230(1) of the
Canada Labour
Code,
    R.S.C. 1985, c. L-2. That section prohibits an employer, after giving notice of
    termination of employment, from altering any term or condition of employment of
    the employee without consent. As I have found, the term requiring active
    employment at the date of payment of the bonus did not disentitle the appellant
    from receiving the bonus he would reasonably have earned during the notice
    period, as part of his compensation for wrongful dismissal.

[49]

In the result, the appellant is entitled to compensation as part of his
    damages for wrongful dismissal for the loss of his bonus for 2014 (that would
    have been payable February 2015) and the lost opportunity to earn a bonus in
    2015 (that would have been payable in February 2016). The parties agreed to a
    determination of the appellants claims in a summary judgment motion. The
    appellant asserted that his damages for lost bonus should be based on the sum
    of $29,193.32 per year, which is the average of the bonuses he received in
    2011, 2012 and 2013. The averaging approach was adopted by the trial judge in
    the
Bernier
case. The respondent did not offer any evidence to suggest
    an alternative amount that Paquette would have received by way of bonus, had
    his employment continued. Accordingly, I would fix the appellants additional
    damages in the sum of $58,386.64. The appellant is entitled to pre-judgment
    interest on that amount. If the parties are unable to agree on the calculation
    and amount of pre-judgment interest, they may make brief written submissions to
    this court within 20 days.

E.

DISPOSITION

[50]

For these reasons I would allow the appeal in the terms herein
    described.

[51]

Costs of the appeal to the appellant on a partial indemnity basis in the
    agreed amount of $15,000, inclusive of disbursements and applicable taxes.

Released: (KMvR) August 9, 2016

K. van Rensburg
    J.A.

I agree Janet
    Simmons J.A.

I agree S.E. Pepall
    J.A.





[1]
In fact, $29,193.32 is an average of the bonuses Paquette received in 2011,
    2012, and 2013, and does not account for the $7,841.41 amount received in
    February 2014 in respect of part of the 2013 fiscal year.


