



COURT OF APPEAL FOR ONTARIO

CITATION: Manastersky v. Royal Bank of Canada, 2019 ONCA 609

DATE: 20190718

DOCKET: C65121

Feldman, Brown and Miller JJ.A.

BETWEEN

James Anthony Manastersky

Plaintiff (Respondent)

and

Royal Bank of Canada and
RBC
    Dominion Securities Inc.

Defendant (
Appellant
)

Jeremy Devereux and Geoff Mens, for the appellant

Nancy Shapiro, for the respondent

Heard: February 19, 2019

On appeal from the judgment of Justice Patrick J. Monahan
    of the Superior Court of Justice, dated February 14, 2018, with reasons
    reported at 2018 ONSC 966.

Brown J.A.:

I.        OVERVIEW

[1]

At issue on this appeal are two components of
    the damages awarded in respect of incentive plan compensation to the respondent
    employee, James Anthony Manastersky, in his wrongful dismissal action.

[2]

Mr. Manastersky was employed by the appellant,
    RBC Dominion Securities Inc. (RBCDS), in its RBC Capital Partners unit. For
    ease of reference, I will refer to both as RBCDS.

[3]

At trial, RBCDS conceded that it terminated the
    employment of Mr. Manastersky without cause. The trial judge found that Mr.
    Manastersky was entitled to 18 months notice upon termination. RBCDS does not
    appeal that finding.

[4]

During his employment, Mr. Manastersky
    participated in profit-sharing plans called carried interest plans. From late
    2004 until his termination in 2014, Mr. Manastersky participated in the
    Mezzanine Carried Interest Plan (the Mezzanine CIP). The trial judge awarded
    Mr. Manastersky: (i) the sum of $953,392.50 in respect of the lost opportunity
    to earn entitlements under the Mezzanine CIP during the 18-month reasonable
    notice period: Judgment, para. 5; and (ii) the amount of $190,789.00 in respect
    of Mr. Manasterskys share of investment proceeds under the Mezzanine CIP for
    the period 2005 to 2013, as calculated using Mr. Manasterskys foreign exchange
    methodology: Judgment, para. 6.

[5]

RBCDS appeals both awards.

[6]

For the reasons set out below, I would allow the
    appeal in respect of the award of damages for lost opportunity and set aside
    para. 5 of the Judgment. I would dismiss the appeal in respect of the award
    concerning the foreign exchange methodology.

II.
THE MEZZANINE CIP ENTITLEMENTS

[7]

This ground of appeal concerns whether Mr. Manastersky
    was entitled during the period of reasonable notice to payments under the
    Mezzanine CIP beyond those he received in respect of the portfolios in the RBC
    CP Mezzanine Fund (the Mezzanine Fund) in existence at the time of his
    termination: Funds 1 and 2. To place the issue in context, I will first review
    in some detail the evidence concerning Mr. Manasterskys employment and the
    carried interest plans that formed part of his contract of employment. I will
    then consider the errors that RBCDS contends the trial judge made in awarding
    damages for lost opportunity.

A.

The
    contract of employment

[8]

In 2001, Mr. Manastersky was recruited to work
    as a director for the Mezzanine Fund. The Mezzanine Fund managed by RBCDS was
    designed to make investments in established companies with a track record of
    positive cash flow, secured by subordinated debt with some form of equity
    participation such as warrants or conversion rights. The funds invested largely
    originated with the Royal Bank of Canada (the Bank) as investing principal.
    The average term to maturity of Mezzanine Fund investments would be 5 to 7
    years. As a director of the Fund, Mr. Manastersky was expected to source
    investment opportunities, perform appropriate due diligence and strategic
    analysis, and successfully close transactions.

The initial carried interest plan

[9]

The May 17, 2001 RBC Offer of Employment that
    Mr. Manastersky accepted and signed stated that his base salary initially would
    start at $200,000 per year and he would participate in a discretionary bonus
    pool determined annually. As well, it confirmed that Mr. Manastersky had been
    allocated points as a participant in a carried interest incentive plan which,
    at the time, was the Royal Bank Capital Partners Carried Interest Plan (the
    2000 Plan):

Carried Interest Plan

You have been provided with a copy of the RBCP
    Carried Interest Plan. We confirm that you will be allocated:

1) 26.25 points in the 2001 Mezzanine Sector
    Pool; and

2) 1.75 points in the 2001 Shared Pool

Allocations for the fiscal 2002 Sector and
    Shared Pools will be completed in September 2001.

[10]

After starting his employment, Mr. Manastersky
    received letters from RBC advising him of the points he had been awarded in the
    2000 Plan for each of the years 2001, 2002, 2003 and 2004. Each letter stated
    that the award of points for a year did not constitute any agreement or
    commitment by RBC to award the same amount of points or any points at all in
    the future or for future years.

The 2004 and 2006 Mezzanine CIPs

[11]

In late 2003, RBCDS decided to reduce the number
    of sector funds in which it was investing. However, it continued its
    investments in the Mezzanine Fund. To reflect that business shift, in November
    2004 RBC revised the profit-sharing mechanism available to employees managing the
    Mezzanine Fund by establishing the Mezzanine CIP. Certain terms of the
    Mezzanine CIP were amended in December 2006, to which Mr. Manastersky agreed in
    writing.

[12]

One purpose of the Mezzanine CIP was to incent
    the participating employees to maximize returns to RBCDS on its investment
    portfolio. The CIP entitled participating employees to receive incentive
    compensation payments computed with reference to the net cash profits and fees
    resulting from [RBCDS] investment activities.

[13]

The concept of
    Investment Periods
: Under the Mezzanine CIP, investments
    made by the Bank and managed by RBCDS in the Mezzanine Fund were placed into
    portfolios established for defined Investment Periods. The first portfolio
    covered an Initial Investment Period running from November 1, 2004 until
    December 15, 2006: the Fund 1 Investment Period, or Fund 1. Investments made in
    the subsequent Investment Period were known as the Fund 2 Investment Period, or
    Fund 2. The Fund 2 Investment Period would end when that fund had accumulated investments
    totaling $160 million. When the Fund 2 Investment Period ended, the Mezzanine CIP
    contemplated a possible Fund 3 Investment Period.

[14]

The allocation of
    points in an Investment Period fund
: All
    full-time employees of RBCDS were eligible to participate in the Mezzanine CIP,
    but no employee was entitled as of right to participate. The decision as to
    which employees would participate lay in the hands of a management committee.
    When a person became entitled to participate, the committee would issue the
    participant an allocation letter that established the participants points in
    the Mezzanine CIP. Section 4.4 of the Plan stated:

Status as a Participant with respect to any
    Investment Period
shall not give
    any Participant the express or implied right
to continued employment by the Bank, RBCP or any of the Banks subsidiaries
or to any

Points for any future Investment Period
. [emphasis added]

[15]

Under the Mezzanine CIP, a participant was
    granted points [w]ith respect to each Portfolio relating to a given Investment
    Period. Those points represented the participants share of the portion of
    the aggregate profits and losses of [RBCDS] with respect to that Portfolio. Points
    were not allocated to a participant on an annual basis. The points allocated to
    Mr. Manastersky for Funds 1 and 2 were set out in schedules to the 2004 and
    2006 Mezzanine CIPs. In connection with any Investment Period after the Fund 2
    Investment Period, art. 6.1.3 of the Mezzanine Plan stated:

In connection with each Investment Period
    thereafter, RBCP will deliver to each Participant who is granted Points for the
    Portfolio applicable to such Investment Period Allocation Letters, dated on or
    about the date on which such Investment period commences, setting forth such
    Participants Points for each such Portfolio.

[16]

An RBC letter dated October 18, 2007, and signed
    by Mr. Manastersky, confirmed that he had been allocated 56.25 points in
    respect of the Fund 1 Investment Period and 50 points for the Fund 2 Investment
    Period. The letter stated that the CIP would otherwise remain in full force and
    effect. The letter continued: Nothing herein shall restrict the ability of the
    Management Committee to modify the CIP, provided such changes do not negatively
    affect your interest in the Fund 1 and Fund 2 Investment Periods.

[17]

There is no dispute that at the time of his
    termination, Mr. Manasterskys points were fully vested. When the employment of
    a participant was terminated without cause, the participant continued as a
    participant, retaining in all Portfolios with respect to which he or she has
    Points, all rights represented by his or her Vested Points.

[18]

Payments of
    profits to participant employees
: Participants
    in the Mezzanine CIP did not receive annual profit-sharing payments. Whereas
    the investment periods under the 2000 Plan were annual periods, the 2004 and
    2006 Mezzanine CIPs provided for Investment Periods based on the cumulative
    dollar amount of investments made in the given investment period. The timing of
    profit-sharing payments to participants was tied to the end of an Investment
    Period, such as the end of the Fund 1 Investment Period or the Fund 2
    Investment Period.

[19]

Article 7.1 of the Plan provided, in part, that
    [p]ayments in respect of Investment Proceeds and Net Fee Income will be made
    in respect of each Investment Period within 45 days
after
    the end of the Fiscal Year in which an Investment Period ends
, and
    semi-annually thereafter on June 15 and December 15  to the extent such
    Investment Proceeds and Net Fee Income are received by [RBCDS]. [emphasis
    added]

[20]

Mr. Manastersky did not receive any Mezzanine
    CIP payments from 2008 to 2014. His interests in Funds 1 and 2 were carried
    during that period of time, with final payments in respect of those funds made
    to him in 2015 and 2016.

[21]

Article 7.2 of the Mezzanine CIP prescribed the
    priority of distribution of the proceeds from the disposition or realization of
    an investment in a portfolio for an Investment Period. In general terms, such
    proceeds were to be used first to return to RBCDS its invested capital and a
    stipulated annual rate of return, with the remainder of the proceeds to be
    split 85/15 between RBCDS and participant employees, who would share the 15%
    split in accordance with their vested points.

[22]

The duration of
    the Mezzanine CIP
: Under Article 9.3, the CIPs Management
    Committee was entitled to terminate the CIP effective as of the end of any
    Investment Period with respect to future Investment Periods.

The termination of Mr. Manasterskys
    employment and the Mezzanine CIP

[23]

By mid-2013, Mr. Manastersky was advised that
    RBCDS was reconsidering its continued reinvestment in the Mezzanine Fund. In an
    October 2013 presentation, Mr. Manastersky canvassed the possible termination
    of the Mezzanine CIP and moving the RBCDS Mezzanine Fund team into the Banks
    client services group. He noted that a pending transaction would effectively
    bring the Fund 2 Investment Period to an end and that the Funds portfolio
    would mature naturally over the next three years.

[24]

By late 2013 or early 2014, a business decision evidently
    had been made to pursue mezzanine investments using Bank funds within the
    commercial banking arm of the Bank, not through RBCDS.

[25]

This decision formed the background to the
    January 21, 2014 offer to Mr. Manastersky to join the Bank as Managing
    Director, Mezzanine Finance, National Client Group. The compensation offered
    included payment of an annual incentive but not participation in a carried
    interest plan similar to the Mezzanine CIP. Mr. Manastersky expressed
    disappointment with the offer. Some further discussions took place. They did
    not prove fruitful from his perspective.

[26]

On February 12, 2014, RBCDS informed Mr.
    Manastersky that his employment would end effective Friday, February 14, 2014. The
    termination letter offered to pay Mr. Manastersky his base salary, bonus
    payments and benefit entitlements for a period of 13 months, or until March 15,
    2015. The letter also provided the option of retiring immediately and receiving
    a lump sum payment. With respect to the Mezzanine CIP, the termination letter stated
    that, [y]our rights and interests in respect of the RBC Capital Partners
    mezzanine fund carried interest plan remain fully vested and all payments to
    which you may ultimately be entitled, if any, will be determined by and
    distributed in accordance with the terms of the plan.

[27]

Mr. Manastersky did not accept the termination
    offer. This litigation ensued.

[28]

In June 2014, the Bank began making mezzanine
    investments through its Mezzanine Finance, National Client Group. In a June 25,
    2014 memorandum, RBCDS sought formal approval from the Mezzanine CIPs Management
    Committee to wind-down Funds 1 and 2 and to approve the termination of the
    Plan in respect of all future Investment Periods pursuant to Article 9.3 of the
    Plan. The memo noted that RBCDS was in the process of winding down the
    portfolio through the maturity and repayment of the underlying loans in both
    funds. RBCDS advised that it did not intend to make any further investments in
    respect of the portfolio. RBCDS sought to terminate the Plan to ensure no new
    investment periods are permitted to commence automatically as currently
    contemplated by the Plan.

[29]

Approval was granted. Funds 1 and 2 were
    wound-down. The Banks Mezzanine Finance, National Client Group managed the
    winding-down on behalf of RBCDS. The actual book of investments wound-down
    stayed within RBCDS for financial and accounting purposes.

[30]

Over the 13 months following his termination,
    RBCDS paid Mr. Manastersky: his base salary of $200,000 per annum over the
    13-month notice period, for a total of $216,667; $188,058 on account of his
    bonus entitlement for the notice period; and his employee benefits.

[31]

Over the course of 2015 and 2016, as the
    portfolios within the Mezzanine Fund were wound down, RBCDS paid Mr.
    Manastersky a total of $5,434,309, representing the companys calculation of
    his entitlement under the Mezzanine CIP from Fund investments made between 2005
    and 2013. There is no dispute that RBCDS paid Mr. Manastersky the full amount
    he was entitled to in respect of his participation in Funds 1 and 2.

[32]

At trial, Mr. Manastersky testified that he was
    not taking the position that he was entitled to an allocation of points with
    respect to some new or notional Fund 3 Investment Period that was never
    established by RBCDS under the Mezzanine CIP.

B.

The issue stated

[33]

When RBCDS terminated his employment in February
    2014, Mr. Manastersky held vested points in both Funds 1 and 2 pursuant to the
    Mezzanine CIP. At that time, the Mezzanine CIP comprised only Funds 1 and 2.

[34]

The 18-month period of reasonable notice to
    which the trial judge found Mr. Manastersky was entitled ran from February 2014
    until August 2015. During that period, RBCDS proceeded to wind-down Funds 1 and
    2 and distribute the proceeds of distribution in accordance with the priorities
    established by the Mezzanine CIP. Mr. Manastersky received his full share of
    the profits realized upon the disposition of Funds 1 and 2.

[35]

RBCDS did not establish any new fund under the
    Mezzanine CIP; no Fund 3 Investment Period was started. Instead, RBCDS ended
    the Mezzanine CIP.

[36]

The trial judge held that Mr. Manastersky was
    entitled to an amount beyond the full share of profits he had been paid in
    respect of Funds 1 and 2. He awarded Mr. Manastersky the sum of $953,392.50 in
    respect of the lost opportunity to earn entitlements under [the Mezzanine CIP]
    during the 18 month reasonable notice period.

[37]

RBCDS contends that although the trial judge
    began his analysis of the issue by citing the correct legal principles, he
    misapplied those principles to the facts of the case. In its view, since Mr.
    Manastersky received all the profits he was entitled to in respect of Funds 1
    and 2, and as under the terms of the Mezzanine CIP the managing committee was
    under no obligation to start up a new Fund 3 Investment Period, Mr. Manastersky
    did not lose any opportunity to earn further entitlements under the Mezzanine CIP,
    which was the contractual basis for his entitlement to incentive plan
    compensation during his employment.

[38]

On his part, Mr. Manastersky takes the position
    that the trial judge properly interpreted his contract of employment and
    applied the governing jurisprudence, so this court should not interfere with
    his award. In his view, the surrounding circumstances of his employment
    relationship and all of the other evidence clearly illustrated that if RBCDS
    terminated the Mezzanine CIP, it would have to be replaced by another carried
    interest plan or comparable form of compensation. He submits that an employer
    cannot take advantage of the discontinuance of a part or function of its
    business to avoid payment to an employee of compensation tied to production of
    that function during the notice period.

C.

Applicable legal principles

[39]

The parties agree that the applicable legal
    principles are those set out in three decisions of this court:
Taggart v.
    Canada Life Assurance Co.
, [2006] O.J. No. 310 (C.A.);
Lin v. Ontario
    Teachers Pension Plan Board
, 2016 ONCA 619, 402 D.L.R. (4th) 325; and
Paquette
    v. TeraGo Networks In
c., 2016 ONCA 618, 352 O.A.C. 1. The
Lin
and
Paquette
decisions were decided by the same panel and released the
    same day.

[40]

The analysis in each of the three decisions
    proceeded from the general principle that where an employer terminates an
    employee without cause, the employer is liable for damages for breach of
    contract, measured by the loss of wages or salary and other benefits that would
    have been earned during the reasonable notice period:
Taggart
, at
    para. 13;
Lin
, at para. 84;
Paquette
, at para. 16. A
    terminated employee is entitled to a common law claim for damages for the loss
    of pension benefits that would have accrued or he would have earned had the
    employee worked until the end of the notice period:
Taggart
, at paras.
    13 and 20. A similar approach applies in the case of bonuses or incentive
    payments that are an integral part of the employees compensation:
Lin
,
    at para. 86

[41]

When considering a claim by a terminated
    employee for damages in respect of benefits payable under such plans during the
    period of reasonable notice,
Taggart
describes the two-step inquiry a
    court should undertake: (i) first, consider the employees common law right to
    damages for breach of contract; and then (ii) consider whether the terms of the
    plan alter or remove a common law right: at para. 12.

[42]

As to the first step of the inquiry, although
Taggart
stated that a terminated employees claim is not for pension benefits but
    rather for damages as compensation for the pension benefits he lost as a result
    of the appellants termination of his employment contract, the decision
    explained that the claim is for common law contract damages as compensation
for the pension benefits the respondent would have
    earned had the appellant not breached the contract of employment

    [emphasis added]: at paras. 11 and 16. The proper measure of damages reflects
    the employers obligation to pay damages that place the employee in the
    position that he or she would have been in had the contract been performed:
Taggart
,
    at para. 16.

[43]

Once a court determines on the evidence what
    benefits the employee would have earned had the employer not breached the
    contract of employment, the employee is entitled to claim damages for loss of
    those common law rights unless there is some contractual term limiting the
    employees common law right. This is the focus of the second step of the
Taggart
analysis. As put by
Taggart
in respect of pension plans, a court must
    ascertain whether there is anything in the pension plan at issue capable of
    depriving the [employee] of his common law right to damages for the loss of the
    pension benefits that
he would have earned
    during the notice period
 [emphasis added]: at para. 15. As to
    bonus plans that contain entitlement terms placing limitations on or conditions
    for the payment of a bonus, the question is whether the wording of the bonus
    plan was sufficient to limit the employees common law right to receive
    compensation for lost bonuses during the period of reasonable notice and
    whether any limiting language was brought to the attention of the employee and
    formed part of his or her contract of employment:
Lin
, at para. 86;
Paquette
,
    at paras. 18 and 46.

D.

Analysis

[44]

The standard of review applicable to the trial
    judges determination of Mr. Manasterskys claim in respect of incentive plan
    compensation is that set out in
Sattva Capital Corp. v. Creston Moly Corp
.,
    2014 SCC 53, [2014] 2 S.C.R. 633, and its progeny:
Ledcor Construction Ltd.
    v. Northbridge Indemnity Insurance Co
., 2016 SCC 37, [2016] 2 S.C.R. 23;
Teal
    Cedar Products Ltd. v. British Columbia
, 2017 SCC 32, [2017] 1 S.C.R. 688.

[45]

Mr. Manastersky framed his claim for damages in
    respect of the Mezzanine CIP as one for payment in lieu of lost participation
    in the CIP during the period of reasonable notice, using an annual rate of
    payment of $1,053,735. In assessing that claim, the trial judge undertook the
    first step in the
Taggart
analysis: determining the employees common
    law right to damages for breach of contract: at para. 38. However, in this part
    of his analysis, the trial judge focused exclusively on the materiality or
    magnitude of payments made under the Mezzanine CIP in relation to Mr.
    Manasterskys overall compensation. He held that payments under the RBCDS
    carried interest plans represented an integral part of Manasterskys
    compensation: at para. 39. In the trial judges view, the CIP was a
    significant, nondiscretionary variable form of compensation that represented
    more than half of Manasterskys annual income, similar to the variable forms of
    incentive compensation considered [in
Lin
]. It was integral to his
    compensation and therefore forms part of his presumptive entitlement to damages
    at common law during the notice period: at para. 41.

[46]

RBCDS submits that although the trial judge correctly
    identified the applicable analysis as that set out in
Taggar
t, the
    first step of his inquiry incorrectly framed the question to be asked. Instead
    of asking what Mr. Manastersky would have earned in respect of the Mezzanine
    CIP had RBCDS not breached the contract of employment, the trial judge wrongfully
    concluded that Mr. Manastersky was presumptively entitled to common law damages
    in respect of the Mezzanine CIP merely because the payments under that Plan
    historically had constituted a significant form of compensation to him. RBCDS
    contends that the trial judge erred by failing to ask and answer the proper
    question under the first step of the
Taggart
analysis.

[47]

I am persuaded by this submission.

[48]

A finding that some form of incentive
    compensation was an integral part of the employees compensation package does
    not exhaust the inquiry under the first step of the
Taggart
analysis.
    It only recognizes that a head of damages is available to a terminated employee
    if he can demonstrate that he would have earned that form of compensation
    during the period of reasonable notice. That commonly occurs, for example,
    where an employee can point to a history of receiving annual performance
    bonuses: see, for example:
Paquette
,
    at para. 7;
Singer v. Nordstrong Equipment Limited
, 2018 ONCA 364, at para. 10.

[49]

It remains the case, however, that when applying
    the
Taggart
approach to a claim for a form of incentive compensation, a
    court must inquire into the terms of the incentive compensation plan, which may
    contain eligibility criteria or establish a formula for the calculation of the incentive
    compensation:
Paquette
, at para. 18.

[50]

The first step of the
Taggart
analysis therefore
    required the trial judge to ascertain whether Mr. Manastersky had a common law
    right to damages for breach of contract in respect of incentive compensation
    related to the Mezzanine CIP. That required the trial judge to determine what Mr.
    Manastersky would have earned under the Mezzanine CIP had RBCDS performed the
    contract of employment and provided him with 18-months notice of termination.
    That, in turn, required the trial judge to examine the terms of the Mezzanine
    CIP as part of the first step in the
Taggart
analysis. The trial judge
    failed to do so and thereby fell into error, ignoring key provisions of the
    Mezzanine CIP relating to what Mr. Manastersky would have earned during the
    notice period.

[51]

Incentive-type plans vary greatly in their
    structure and pay-out terms. Of necessity, the analysis under the first step of
    the
Taggart
approach will be very case-specific. The analysis in
    respect of one type of incentive plan may not be transferable to the analysis
    of another type of incentive plan.

[52]

For example,
Taggart
,
Lin
and
Paquett
e
    all involved situations where the incentive or pension plan in question
    continued in the ordinary course of the employers business during the
    applicable period of reasonable notice.
[1]
At issue in
Lin
and
Paquette
was the terminated employees
    entitlement to annual payments under continuing bonus or incentive plans:
Lin
,
    at para. 69;
Paquette
, at paras. 30 and 49.
Taggart
concerned
    the entitlement of a terminated employee to accruing pension benefits during
    the period of reasonable notice.
[2]


[53]

By contrast, the structure and conditions of
    entitlement under the Mezzanine CIP are quite different. Mr. Manasterskys
    contract of employment called for him to manage investments in mezzanine
    opportunities made through the RBCDS Mezzanine Fund. In the last decade of his
    employment, his entitlement to carried interest incentive-type compensation in
    respect of such investments was governed by the terms of the Mezzanine CIP.

[54]

The CIP was the product of an agreement between
    a sophisticated employer and a group of sophisticated employees. The terms of
    the agreement were fully disclosed to Mr. Manastersky. As a participant in the
    plan, he signed the December 15, 2006 amended Mezzanine CIP.

[55]

The entitlement of a participant, such as Mr.
    Manastersky, to earn payments under the Mezzanine CIP was tied to the existence
    of the funds created for different Investment Periods. Two funds existed during
    the last decade of Mr. Manasterskys employment and the period of reasonable
    notice: Funds 1 and 2. In accordance with the terms of the Mezzanine CIP, Mr.
    Manastersky was allocated a specific amount of points in respect of each Fund.

[56]

As Article 4.4 of the Mezzanine CIP clearly
    stated, the status of a participant with respect to any Investment Period
    shall not give any Participant the express or implied right
to any Points for any future Investment Period
.
    [emphasis added]

[57]

By the time of his termination, Mr. Manasterskys
    allocated points for Funds 1 and 2 were fully vested. However, payments in
    respect of his carried interests in each Fund were not done annually but were
    to be made after the end of each Investment Period from the net proceeds of the
    disposition or realization of investments in a portfolio or fund. The
    investments in Funds 1 and 2 were not fully realized until after the
    termination of Mr. Manasterskys employment and the running of the period of
    reasonable notice.

[58]

Mr. Manastersky was entitled to his
pro rata
share of the Investment Proceeds received by RBCDS in a particular Investment
    Period. In respect of the Funds 1 and 2 Investment Periods, he was paid that
    entitlement during the period of reasonable notice  which ended on August 14,
    2015  as well as in 2016. There is no dispute that RBCDS paid Mr. Manastersky
    the full amount of the payments to which he was entitled in respect of Funds 1
    and 2 based on his allocated points.

[59]

Accordingly, those payments in respect of his
    share of profits in Funds 1 and 2 reflect what Mr. Manastersky would have
    earned by way of incentive plan compensation had RBCDS given proper notice of
    the termination of his employment.

[60]

But, the trial judge awarded Mr. Manastersky
    significantly more. In so doing, he did not identify any term of the Mezzanine
    CIP that entitled Mr. Manastersky to earnings or payments during the period of
    reasonable notice beyond his allocated share of profits in Funds 1 and 2.

[61]

It is not surprising that the trial judge was
    unable to identify any such provision. None existed. To the contrary, the terms
    of the Mezzanine CIP provided that Mr. Manastersky was not entitled to any
    further earnings under that plan:


i.

The Management Committee was entitled to
    terminate the Plan effective as of the end of any Investment Period with
    respect to future Investment Periods: Art. 9.3. The Management Committee did
    so. No new Fund 3 Investment Period was created;


ii.

A participant was granted points in respect to
    each Portfolio relating to a given Investment Period and those points
    represented the Participants share of the portion of the aggregate profits and
    losses of RBCDS with respect to that Portfolio: Art. 6.1.1;


iii.

Any allocation of points in connection with an
    Investment Period after the Funds 1 and 2 Investment Periods would be done by
    way of a new allocation letter: Art. 6.1.3; and


iv.

An employees status as a participant in respect
    to any Investment Period did not give the participant the express or implied
    right  to any Points for any future Investment Period: Art. 4.4.

[62]

Those provisions, when combined with the
    decision of the Management Committee to terminate the Plan, indicate that Mr.
    Manastersky was not entitled to any common law damages in respect of the
    Mezzanine CIP profit-sharing plan beyond those relating to his vested points
    for Funds 1 and 2. The trial judge erred in law by finding to the contrary
    because he failed to make the inquiry mandated by the first step of the
Taggart
approach. He incorrectly relied on the magnitude of Mr. Manasterskys carried
    interests under the Mezzanine CIP as a sufficient basis upon which to find a
    common law right to further incentive amounts during the period of reasonable
    notice.

[63]

The trial judge did address RBCDS submission
    regarding its ability to terminate the Plan, albeit in the portion of his
    reasons dealing with the second step of the
Taggart
approach. The
    trial judge reasoned, at para. 44, that:

I do not believe that the fact that RBC had
    the option of terminating the Plan at the end of an investment period should be
    regarded as limiting Manasterskys entitlement to notice at common law. First,
    RBCs right to terminate the CIP was in no way tied to the termination of
    Manasterskys employment. Far from containing clear language limiting rights
    upon termination of employment,
the provision in the CIP permitting RBC to terminate
    the Plan did not purport to limit or reduce his common law entitlements
.
Nor could it be said that the parties did not turn their minds to
    the consequences flowing from the termination of Manasterskys employment on
    his entitlements under the CIP. In fact, the CIP enhanced Manasterskys
    entitlements in the event his employment was terminated without cause, through
    accelerated vesting of his Points. [emphasis added]

[64]

With respect, the trial judge fell into palpable
    and overriding error by holding that 
the provision in
    the CIP permitting RBC to terminate the Plan did not purport to limit or reduce
    his common law entitlements. I have explained in paras. 61 and 62 above how
    that provision, when read with other provisions in the Mezzanine CIP, set the
    parameters on Mr. Manasterskys common law entitlement to incentive payments
    during the period of reasonable notice. Respectfully, the trial judge failed to
    read that provision  Art. 9.3  in the context of the contract as a whole,
    thereby falling into reversible error.

[65]

At trial, Mr. Manastersky testified that he was
    not taking the position that he was entitled to an allocation of points in
    respect of some new Fund 3 that RBCDS should have set up under the Mezzanine CIP.
    Yet, by awarding Mr. Manastersky damages for earnings beyond those relating to
    Funds 1 and 2, the trial judge effectively was holding that RBCDS was obligated
    to establish some notional Fund 3 that would exist at least until Mr. Manasterskys
    period of reasonable notice came to an end.

[66]

The trial judge did not make such an express
    finding, but he reached the same position by resorting to the concept of
    constructive dismissal. At para. 46 of his reasons the trial judge stated:

What if Manasterskys employment had continued past February
    14, 2014 and in June 2014 RBC had terminated the CIP without offering
    Manastersky some alternate, comparable form of compensation? Although
    consistent with the terms of the CIP, this would have amounted to a unilateral
    significant reduction in his compensation, as it would have eliminated the
    opportunity for him to continue to accrue entitlements through the CIP. This
    would in all likelihood have amounted to a constructive dismissal, thereby
    triggering an entitlement to damages at common-law, including damages for the
    lost opportunity to continue to earn entitlements under the CIP.

[67]

With respect, I do not see how RBCDS
    termination of the Mezzanine CIP in accordance with its terms, which were known
    and agreed to by Mr. Manastersky, could amount to conduct by an employer that
    evinces an intention to no longer be bound by the employment contract:
Potter
    v. New Brunswick Legal Aid Services Commission
, 2015 SCC 10, [2015] 1
    S.C.R. 500, at para. 30. The termination of the Mezzanine CIP did not involve
    any breach of contract by RBCDS. As the trial judge recognized, the CIPs termination
    was consistent with the terms of the CIP.

[68]

Nor did the CIPs termination more generally [show]
    that the employer intended not to be bound by the contract or demonstrate
    conduct that, when viewed in the light of all the circumstances, would lead a
    reasonable person to conclude that the employer no longer intended to be bound
    by the terms of the contract:
Potter
, at paras. 33 and 42. Mr.
    Manastersky was hired to manage specific funds. At the time of his offer of
    employment, he was provided with a copy of the 2000 Plan. Mr. Manastersky
    signed the 2006 Mezzanine CIP.
[3]
Those plans contained the same Article 9.3, which clearly disclosed that one
    risk embedded in Mr. Manasterskys contract of employment was that the Management
    Committee could terminate the plan effective as of the end of any Investment
    Period with respect to future Investment Periods.

[69]

By terminating the Mezzanine CIP, RBCDS was not
    evincing an intention not to be bound by the employment contract. On the
    contrary, it was exercising a fully disclosed right it had under the contract
    of employment. Consequently, I see no evidentiary support for the trial judges
    finding that a termination of the Mezzanine CIP would have amounted to a
    constructive dismissal.

[70]

For these reasons, I would give effect to this
    ground of appeal and set aside para. 5 of the Judgment, which awarded Mr.
    Manastersky damages of $953,392.50 in respect of the lost opportunity to earn
    entitlements under the Mezzanine CIP.

IV. THE CIP FOREIGN EXCHANGE METHODOLOGY

A.

The issue stated

[71]

The second ground of appeal concerns the
    appropriate foreign exchange rate that should be applied to value U.S. dollar
    investments made in the Mezzanine Fund between 2005 and the ultimate
    disposition of the investments in Funds 1 and 2 for the purpose of calculating
    the payments out to Mezzanine Plan participants.

[72]

At trial, RBCDS contended that the Canada-U.S.
    dollar exchange rate in place
at the
    time of the disposition
or maturity of an investment in the
    Funds  the exit rate  should be applied to calculate the book value of a
    U.S. dollar investment as well as the proceeds received upon its disposition or
    maturity. Mr. Manastersky argued that the exchange rate
as of the date of the investment
should
    be used to calculate the book value and proceeds of disposition.

[73]

As a practical matter, the parties differing
    positions only affect the valuation of U.S. dollar investments that had been
    written off during the lifetimes of Funds 1 and 2.

[74]

The trial judge accepted the methodology
    proposed by Mr. Manastersky. RBCDS submits he erred in so doing.

B.

The evidence

[75]

From the point of view of the main investor in
    the Mezzanine Fund  the Bank  its capital investments in the Fund were fully
    hedged at the Bank, not Fund, level against the risk of foreign exchange
    fluctuations. However, the Mezzanine CIP did not contain any express provision dealing
    with the impact of foreign currency exposure on returns to employee participants.

[76]

The methodology advanced by Mr. Manastersky at
    trial had been used by RBCDS to calculate payments made under the 2000 Plan to
    participant employees for the investment periods between 2001 and 2004.

[77]

In August 2013, RBCDS retained Kroll Inc. to
    provide advice on the appropriate foreign exchange methodology to use in
    winding-down a carried interest plan that was separate from, but used language similar
    to that in, the Mezzanine CIP. Ms. Bessie Petroff, a vice-president on the
    financial and accounting side of RBCDS, testified that the company had reached
    out to Kroll for their guidance and assistance because there was nothing
    implied in [the other carried interest plan] to help guide us on how to do it.
    According to Ms. Petroff, the Mezzanine CIP also was silent on what foreign
    exchange methodology to use. When taken to the definition of invested capital
    in the Mezzanine CIP as the original book value of the Investment  determined
    in accordance with Canadian generally accepted accounting principles
    consistently applied, Ms. Petroff testified that the definition did not
    specify the currency or the applicable exchange rate.

[78]

Alan Hibben, the RBCDS executive involved in
    setting up both the 2000 Plan and the Mezzanine CIP, acknowledged that the
    absence of any foreign exchange methodology was a miss in the plan documents,
    which they had to cover by adopting a matching practice.

[79]

The trial judge heard evidence from Mr. Peter
    McFarlane, the individual at Kroll who supervised giving RBCDS foreign exchange
    methodology advice in 2013. Mr. McFarlane is a chartered professional
    accountant. He was not qualified as an expert witness nor did he provide a report
    under Rule 53.03 of the
Rules of Civil Procedure
. Mr. McFarlane also
    acknowledged that the Mezzanine CIP was silent on the foreign exchange
    translation methodology.

[80]

According to Mr. Hibben, the philosophy of the
    plan was that currency exposure was not taken by the participants in the plan
    other than to the extent that a U.S. dollar profit would have been translated
    at a spot rate of exchange when the payment from the carried interest plan
    would have been made. Mr. Hibben conceded that he did not really know how U.S.
    investments were valued on the books of the Fund.

[81]

Kroll advised using an exit rate foreign
    exchange methodology, advice which RBCDS accepted and used to calculate Mr.
    Manasterskys entitlements under the Mezzanine CIP from investments made
    between 2005 and 2013.

[82]

Ms. Petroff testified that RBCDS accepted the
    exit rate methodology in part because it didnt want any FX noise to the
    participants, by which she meant that the company did not want currency swings
    to go to the participants because that would not be fair. She also testified
    that a change to the exchange methodology that might result in less proceeds to
    the participants could not be established without the consent of the employee participants:
    That would be a change that they would have to agree upon.

[83]

Ms. Petroff also stated that when RBCDS accepted
    Krolls exit rate methodology, she did not think of going back to see if it
    differed from the calculations RBCDS had used historically for the exchange
    rates on U.S. dollar investments.

[84]

At trial, Mr. Manastersky argued that in the
    absence of an express foreign exchange methodology in the Mezzanine CIP, it
    would be unfair to require a participant such as himself to bear the risk of
    exchange fluctuations. RBCDS acknowledged that had it used the methodology
    advocated by Mr. Manastersky (as it had between 2001 and 2004), Mr.
    Manasterskys entitlement to payouts in respect of Funds 1 and 2 would have
    increased by $190,789.

[85]

The trial judge accepted Mr. Manasterskys
    position and awarded him $190,789 in respect of his share of investment
    proceeds under the CIP for the period 2005 to 2013, as calculated using the
    Plaintiffs foreign exchange methodology. Based on his assessment of the
    evidence, the trial judge found, at paras. 65 and 66 of his reasons, that:


i.

the CIP was silent on the foreign exchange
    issue;


ii.

participants in the CIP were not expected to
    bear the risk associated with fluctuations in foreign exchange;


iii.

applying a methodology that had the effect of
    exposing participants to significant foreign exchange risk was neither fair nor
    consistent with the goals of the Mezzanine CIP, including the goal of providing
    investment professionals with an incentive to maximize returns to RBCDS on its
    investment portfolio, as well as providing a financial incentive that would assist
    RBCDS in retaining and recruiting talented individuals to carry out its
    business objectives;


iv.

the methodology proposed by Mr. Manastersky was
    utilized by RBCDS in calculating payouts under the 2000 Plan arising from
    investments made between 2001 and 2004; and


v.

utilizing Mr. Manasterskys foreign exchange
    methodology for the limited purpose of calculating payouts under the Mezzanine CIP
    would not create any difficulties for the Bank in preparing the companys
    financial statements.

C.

Analysis

[86]

RBCDS submits that the award of damages in
    respect of foreign exchange risk should be set aside as a result of four errors
    made by the trial judge: (i) he ignored the clear language of the Mezzanine CIP
    that calculations of investment gains and losses were to be determined in
    accordance with GAAP; (ii) the only foreign exchange methodology identified in
    the evidence as consistent with GAAP was the exit rate methodology proposed by Mr.
    McFarlane from Kroll; (iii) no expert evidence was called to support Mr.
    Manasterskys date of investment methodology; and (iv) the trial judge
    improperly allowed evidence of surrounding circumstances and the parties
    subjective intentions to rewrite the words of the Mezzanine CIP.

[87]

I am not persuaded by any of those submissions.

[88]

First, the Mezzanine CIP did not contain clear
    language about the choice of foreign exchange methodology to determine payments
    to participants. RBCDS own witnesses were unanimous on that point. Ms. Petroff
    said the CIP was silent; Mr. Hibben acknowledged that the absence of such
    evidence was a miss.

[89]

The definition of invested capital in the
    Mezzanine Plan does not fill that gap. It simply states that Invested Capital
    with respect to an investment means the original book value of the Investment
     determined in accordance with Canadian generally accepted accounting
    principles consistently applied. That definition of Invested Capital is used
    in determining the amount of the proceeds of disposition or realization of an
    investment that is returned in first priority to RBCDS, in accordance with s.
    7.2.1 of the Mezzanine CIP. The collective effect of the evidence of Ms.
    Petroff and Mr. Hibben was that the definition of Invested Capital did not
    provide them with contractual guidance about which foreign exchange methodology
    to use. That contractual silence was one reason why RBCDS sought outside advice
    from Kroll on the issue.

[90]

Second, Mr. McFarlane, who supervised Krolls
    provision of advice to RBCDS, did not testify that GAAP required the Mezzanine
    Plan to use the exit rate for calculating payments out to participants. His
    testimony was to a different effect, as can be seen from the following exchange
    during his examination-in-chief:

Q. When you provided advice to Royal Bank
    Capital Partners, what was your view as to whether the foreign exchange
    methodology applied was consistent or inconsistent with generally accepted
    accounting principles under the CICA handbook or IFRS?

A. My view was that, you know, the 
the requirements of
    GAAP with regard to the foreign country translation were -- were dealt with at
    -- at the macro level at the bank
, and so the assumption was that
    certainly
at
    a macro level
that the bank was conducting itself in accordance
    with GAAP.

Q. And what was your view as to whether the
    foreign exchange methodology was consistent or inconsistent with the
    methodology referred to in Royal Banks published financial statements?

A. It was consistent.

Q. And have you views on these issues changed?

A. No.

Q.
Is there any requirement under accounting standards
    that the foreign exchange methodology used in the carried interest plans be the
    same methodology used in Royal Banks published financial statements?

A.
No
.
[emphasis added]

[91]

Mr. McFarlane did testify, in re-examination,
    that the exit rate methodology he had proposed to RBCDS was the preferred
    rate, but he did not put his view any higher than that.

[92]

Third, although Mr. Manastersky is not a
    chartered professional accountant, he had decades of experience making and
    managing investments. That experience provided a firm basis for the trial
    judges acceptance of Mr. Manasterskys evidence about the appropriate foreign
    exchange methodology for the investments that he had managed, especially given
    his unchallenged evidence that the methodology had been used by RBCDS to
    calculate payments out to participants under the 2000 Plan.

[93]

Fourth, the trial judge did not improperly allow
    evidence of surrounding circumstances and the parties subjective intentions to
    rewrite the words of the Mezzanine CIP. The evidence was clear: the Mezzanine
    CIP was silent on the issue of the appropriate foreign exchange methodology.
    Simply put, there was no contractual term to rewrite.

[94]

Finally, the trial judges conclusion that it
    was not fair or appropriate for RBCDS, after the fact, to seek to apply a
    methodology that had the effect of exposing participants to significant foreign
    exchange risk was firmly supported by the evidence. The Mezzanine CIP was
    silent on the issue of the applicable foreign exchange methodology. Consequently,
    by imposing the exit rate methodology on the calculation of payments to Mr.
    Manastersky in respect of Funds 1 and 2, RBCDS in effect was amending the CIP
    in a material way, as well as departing from the methodology it had used in
    making payments out under the 2000 Plan. Article 9.2.1 of the Mezzanine CIP
    required the written consent of a participant to any change that may
    materially and adversely affect the determination of any amount to be paid to
    any Participant in respect of any Investment Period which has already
    commenced. Mr. Manastersky did not consent to using the exit rate
    methodology. Consequently, the trial judges conclusion on this point found
    firm support in the language of the Mezzanine CIP.

[95]

For these reasons, I would not give effect to
    this ground of appeal.

V.      DISPOSITION

[96]

For the reasons set out above, I would allow the
    appeal in part and set aside para. 5 of the Judgment. I would dismiss the
    appeal in respect of para. 6 of the Judgment.

[97]

The parties agreed that the successful party
    should be awarded costs of the appeal in the amount of $23,000. In the event
    success was split, they agreed that amount should be reduced but in a way that
    would reflect that the parties had put a greater amount of work into the first
    ground of appeal. Accordingly, I would award RBCDS its costs of the appeal
    fixed at $15,000, inclusive of disbursements and applicable taxes.

[98]

If the parties are unable to agree on the costs
    of the trial in light of the disposition of the appeal, they each may file
    costs submissions not exceeding three pages in length no later than August 9,
    2019.

David Brown J.A.

I agree. B.W. Miller J.A.



Feldman J.A. (dissenting):

Overview

[99]

I have had the benefit of reading
    the reasons of my colleague and I agree that the appeal should be dismissed on
    the foreign exchange issue. However I would also dismiss the appeal on the
    Mezzanine Carried Interest Plan (the CIP or the Plan) entitlement issue.

[100]

The trial judge found that the CIP
    constituted an integral component of the respondents compensation. The fact
    that the CIP contained a term that allowed RBC to terminate the Plan does not
    also mean that RBC could unilaterally eliminate this integral component of the
    respondents compensation without replacing it with a comparable form of
    compensation. That would take clear language to the effect that if RBC chose to
    terminate the CIP, that portion of the respondents compensation entitlement
    would also be terminated. In my view, the trial judge did not err in
    interpreting the terms of the CIP or determining the respondents entitlement
    to damages. I would accordingly dismiss the appeal.

Standard of Review

[101]

The issue in this case is the
    application of the test for determining the quantum of compensation to which a
    wrongfully dismissed employee is entitled (the 
Taggart
test
[4]
), and the
    interpretation of an individual contract of employment. Therefore, the standard
    of review is governed by the principle in
Sattva Capital Corp. v. Creston
    Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50-55, for
    questions of mixed fact and law: see also
Ledcor Construction Ltd. v.
    Northbridge Indemnity Insurance Co.
, 2016 SCC 37, [2016] 2 S.C.R. 23;
Teal
    Cedar Products Ltd. v. British Columbia
, 2017 SCC 32, [2017] 1 S.C.R. 688.

[102]

In my view, the trial judge made
    no error of law in his application of the
Taggart

test or
    palpable and overriding error in the interpretation of the terms of the
    respondents contract of employment. His decision is entitled to deference by
    this court.

Applicable Legal Principles

[103]

This court has made clear in a
    series of recent cases that a wrongfully dismissed employee is entitled to
    damages for all forms of compensation that formed an integral component of the
    employees compensation at the time of the termination of employment, subject
    only to clear contractual language limiting those rights.

[104]

The legal framework for
    determining a wrongfully dismissed employees entitlement to damages is set out
    in
Lin v. Ontario Teachers Pension Plan Board
, 2016 ONCA 619, 402
    D.L.R. (4th) 325, at para. 85 (citing
Taggart
, at paras. 11, 16); see
    also
Paquette v. TeraGo Networks Inc.
, 2016 ONCA 618, 352 O.A.C. 1, at
    paras. 30-31;
Dawe v. Equitable Life Insurance Company of Canada
, 2019
    ONCA 512, at para. 48. First, the court must determine the terminated
    employees common law right to damages for breach of contract based on what the
    employee would have earned had he or she continued in his or her employment.
    Second, the court must consider whether the terms of the relevant contract(s)
    alter or remove that presumptive common law right on termination of employment.

[105]

Under the first branch of the
Taggart
test, the terminated employees common law right to damages for breach of
    contract is measured by the loss of wages or salary and other benefits that
    would have been earned during the reasonable notice period:
Taggart
, at
    para. 13; see also
Paquette
, at para. 16. Damages may include bonuses or
    other benefits if they formed an integral part of the employees compensation
    package:
Paquette
, at paras. 30-31;
Singer v. Nordstrong Equipment
    Limited
, 2018 ONCA 364, 47 C.C.E.L. (4th) 218, at para. 24. This may be the
    case even where the bonus is described as discretionary:
Paquette
, at
    para. 17; see also Howard A. Levitt, The Law of Dismissal in Canada (Toronto:
    Thomson Reuters, 2003) (loose-leaf updated 2017), ch. 9 at pp. 7-13.

[106]

In
Taggart
and
Paquette
,
    the pension plans that formed part of the compensation packages contained
    language that purported to limit the employees right to earn his or her full
    pension during the reasonable notice period following dismissal. Therefore, in
    those cases it was logical to look at the terms of the pension at the second
    stage of the analysis to see whether they limited the right the employee would
    have had, had he or she not been dismissed, to earn that pension. However,
    where a benefit plan contains terms that apply to an employee during
    employment, then the court will look at the terms of the plan at the first
    stage of the analysis, to determine the integral components of the employees
    compensation package.

[107]

Some of the factors that Ontario
    courts consider in determining whether a bonus (or other benefit) is integral
    to the employees compensation package include: whether the bonus was received
    each year; whether bonuses were required to remain competitive with other
    employers; whether bonuses had been awarded to the employee in the past;
    whether the employer had ever exercised its discretion to not award a bonus to
    the employee; whether the bonus was promoted as an integral part of the
    employees compensation; and, whether the bonus constituted a significant
    component of the employees overall compensation: see
Bain v. UBS Securities
    Canada Inc.
, 2016 ONSC 5362, at paras. 83-84 (citing
Wolfman v.
    Rocktenn-Container Canada
, L.P.
, 2015 ONSC 1432, at para. 37) (
Bain

(ONSC));
Dawe
, at para. 49.

[108]

Once the court has determined the
    employees common law right to damages for breach of contract (i.e. what the
    employee would have earned during the reasonable notice period), it must
    consider whether anything in the contract of employment or the benefit plan at
    issue alters or removes that right on termination of employment:
Lin
, at
    para. 85. Clear language is required in order to take away or limit a
    dismissed employees common law rights:
Lin
, at para. 86 (citing
Taggart
,
    at para. 20);
Dawe
, at para. 48. I would add that clear contractual
    language is required at either stage of the
Taggart
test to limit an
    employees rights to compensation.

Decision of the Trial Judge

[109]

The trial judge accurately described the issue and the positions of
    the parties at paras. 26-27 of the reasons:

[
26
]    The
    Termination Offer provided that Manasterskys entitlements under the CIP
    remained fully vested and all payments to which he was entitled would be
    distributed in accordance with the terms of the Plan. However, although RBC
    compensated Manastersky for amounts he had earned from investments made up
    until the date of his termination, they did not compensate him for additional
    amounts that he might have earned from Mezzanine Fund investments that might
    have been made had he remained employed during the notice period.

[
2
7]    RBC
    maintains that it was not required to provide any such compensation due to the
    terms of the CIP itself. In particular, RBC maintains that at the time of the
    termination of Manasterskys employment, it was entitled to terminate the CIP
    in respect of future investment periods. Therefore, RBC maintains, since it
    could have terminated the CIP at the time of Manasterskys dismissal, it was
    not required to compensate him for amounts that he might have earned from
    future investments. Manastersky, on the other hand, argues that the CIP was a
    fundamental component of his compensation and that RBC was required to
    compensate him for the lost opportunity to accrue additional entitlements under
    the CIP during the notice period.

[110]

The appellant made the same
    argument at trial that it made on appeal: because it had the right to terminate
    the CIP in respect of future investment periods, the respondent was not
    entitled to be compensated for what he might have earned during the notice
    period from the CIP from a future investment fund.

[111]

My colleague states that the trial
    judge erred by asking the wrong questions in applying the
Taggart
test.
    He states that the trial judge should have looked at the terms of the CIP when
    assessing the first stage of the
Taggart

test to determine the
    respondents common law entitlement to damages, and not at the second stage. He
    also states that the trial judge made a palpable and overriding error in
    finding that the terms of the CIP did not limit or reduce the respondents
    common law entitlements.

[112]

I do not agree that the trial
    judge erred in either respect. He was alive to the contractual interpretation
    issue raised by the appellant, which he addressed and rejected. In my view, he
    was correct to do so.

[113]

In considering what the respondent
    was entitled to earn as part of his compensation package, the trial judge first
    examined the RBC Capital Partners Mezzanine Fund (the Mezzanine Fund or the
    Fund) in detail, and how the CIP, which was linked to the performance of the
    Fund, operated as a profit-sharing vehicle for those employees who were
    eligible to participate in it, including the respondent.

[114]

In describing how the respondent
    was originally recruited and hired as the Director of the Fund, the trial judge
    noted that the job description stated that the successful candidate would be
    offered a highly attractive compensation package, including base salary,
    annual performance bonus
and participation in the [F]unds carried interest

    (emphasis added). The respondents participation in the Plan was provided for
    as part of his compensation program and agreed to in his contract of
    employment.

[115]

The trial judge also described the
    points in the Fund that were allocated to the respondent over his years of
    employment, from June 2001 to February 2014. He noted that while the allocation
    of a specific number of points was discretionary, the respondents points had
    remained constant since 2007 when he received 50% of the available points for
    all employees. Over the course of his 13 years of employment with RBC, the
    respondents CIP share represented well over 50% of his total annual earnings.
    The trial judge referred to
Bain

(ONSC) for the general test for
    determining whether a bonus is an integral part of an employees compensation.
    One element of that test is whether the employee received a bonus every year:
Bain

(ONSC), at para. 83.

[116]

The trial judge then reviewed the
    leading cases on the issue of how to determine an employees entitlement to
    damages for wrongful dismissal, including all forms of compensation beyond
    wages which form an integral part of the employees compensation package: see
Lin
;
    Paquette; Taggart
.

[117]

The point of contention in the
    respondents case was whether the CIP represented an integral part of the
    respondents compensation. That issue had to be determined in order to address
    the first part of the
Taggart
analysis: the employees common law right
    to damages.

[118]

In deciding whether the CIP
    entitlement formed an integral part of the respondents compensation, the trial
    judge took into account the following contextual factors: it formed part of his
    contract; he participated throughout his 13 years of employment; although the
    points allocation was discretionary, his had remained constant since 2007; and
    his CIP entitlement represented over 50% of his annual income. The trial judge
    concluded, at para. 41:

In short, the CIP was a
    significant, nondiscretionary variable form of compensation that represented
    more than half of Manasterskys annual income, similar to the variable forms of
    incentive compensation considered by Corbett J. in [
Lin v. Ontario Teachers
    Pension Plan Board
, 2015 ONSC 3494, at paras. 92-94]. It was integral to
    his compensation and therefore forms part of his presumptive entitlement to
    damages at common law during the notice period.

[119]

The trial judge then turned to the
    second component of the test: whether the terms of the CIP altered or removed
    the respondents common law right to damages on termination of his employment.
    He noted, relying on the jurisprudence of this court, that clear language is
    required to limit common law entitlements. He focused on the fact that the CIP
    specifically addressed what would happen on termination of employment by
    providing for accelerated vesting of the respondents points in the CIP. It did
    not purport to reduce or limit the respondents entitlement.

[120]

The trial judge then addressed the
    argument, which is renewed on appeal and which my colleague accepts, that
    because the Plan provided that RBC could terminate the CIP at the end of any
    investment period, RBC was entitled to eliminate the respondents ability to
    earn CIP during his employment, which in turn constituted a limitation on the
    respondents right to have the CIP be considered part of his compensation
    package and presumptive common law entitlement on termination. The trial judge
    rejected that argument, as follows:

[43]    RBC argued that
    Manastersky was not entitled to compensation in respect of the CIP during the
    common law notice period by virtue of a provision which allowed RBC to
    terminate the Plan effective as of the end of any Investment Period with
    respect to future Investment Periods. As noted earlier, by the fall 2013, the
    CIP was nearing the end of the investment period for Fund 2, by virtue of the
    fact that the total amount invested through the Mezzanine Fund was approaching
    $160 million. Upon the conclusion of the Fund 2 investment period, a new
    investment period would automatically begin. However, RBC could also elect to
    terminate the CIP with respect to future investment periods upon the conclusion
    of the Fund 2 investment period and prior to the commencement of Fund 3. In
    fact, RBC exercised this right on June 25, 2014, when it terminated the CIP in
    respect of future investment periods.

[44]    I do not believe that the
    fact that RBC had the option of terminating the Plan at the end of an
    investment period should be regarded as limiting Manasterskys entitlement to
    notice at common law. First, RBCs right to terminate the CIP was in no way
    tied to the termination of Manasterskys employment. Far from containing clear
    language limiting rights upon termination of employment, the provision in the
    CIP permitting RBC to terminate the Plan did not purport to limit or reduce his
    common law entitlements. Nor could it be said that the parties did not turn
    their minds to the consequences flowing from the termination of Manasterskys
    employment on his entitlements under the CIP. In fact, the CIP enhanced
    Manasterskys entitlements in the event his employment was terminated without
    cause, through accelerated vesting of his Points.

[45]    Further, the fact that
    RBC terminated the CIP in respect of future investment periods on June 25,
    2014, four months after Manasterskys dismissal without cause, does not alter
    this analysis. As Sharpe JA explained in
Taggart
, in cases where a
    terminated employee seeks compensation for entitlements under a benefit plan,
    the claim is not for the benefits themselves. Rather, the claim is for common
    law contract damages as compensation for the benefits that the employee would
    have earned had the employer not breached the contract of employment. The
    employee is claiming for the lost opportunity to continue to earn or receive
    benefits that would have been available in the event their employment had
    continued. As of the date of the Termination Offer, RBC had not in fact
    terminated the CIP, and it therefore remained in place as an integral component
    of Manasterskys compensation.

[
46
]    What if Manasterskys employment had continued past
    February 14, 2014 and in June 2014 RBC had terminated the CIP without offering
    Manastersky some alternate, comparable form of compensation? Although
    consistent with the terms of the CIP, this would have amounted to a unilateral
    significant reduction in his compensation, as it would have eliminated the
    opportunity for him to continue to accrue entitlements through the CIP. This
    would in all likelihood have amounted to a constructive dismissal, thereby
    triggering an entitlement to damages at common-law, including damages for the
    lost opportunity to continue to earn entitlements under the CIP.

Analysis

[121]

My colleague takes issue with the trial judges application of the
Taggart
test. He says the trial judge had to consider the terms of the CIP as part
    of the first step in the
Taggart
analysis in order to determine the
    respondents common law right to damages, and that he erred in law by failing
    to do so.

[122]

The argument is that the CIP
    contains a limit on the respondents common law right to earn CIP during his
    employment, rather than a limit on his right to a bonus or a pension following
    termination, as in
Paquette
and
Taggart
.
In other words,
    because RBC had no obligation to continue the CIP beyond the two existing funds
    or to start a third fund, it could not be said that the respondent would have
    continued to earn CIP during his employment or during the reasonable notice period.

[123]

I agree with my colleague that, as
    a matter of law, the terms of the employment contract and the terms of any plan
    documents incorporated into the employment contract by reference  as the CIP
    was here  are relevant at the first stage of the
Taggart

test in
    determining what the employee would have earned during the period of reasonable
    notice: see
Paquette
, at para. 18.

[124]

However, as I read his reasons,
    the trial judge carefully considered the terms of the CIP in determining
    whether the appellants right to terminate the CIP prevented that portion of
    the respondents compensation from forming part of his presumptive entitlement
    to common law damages. He made two cogent observations, at para 44: 1) RBCs
    right to terminate the CIP was in no way tied to the termination of the
    respondents employment, and 2) that right did not purport to limit or reduce
    the respondents common law entitlements.

[125]

The trial judge considered the
    appellants argument on this point fully at the end of his analysis and
    rejected it. While it would have been preferable for the trial judge to have
    addressed this argument in the part of his reasons where he deals with the
    first stage of the
Taggart
test, read as a whole, the trial judges
    reasons reveal that he properly considered the terms of the relevant documents
    and the applicable law in determining the respondents entitlement to damages.

[126]

Moreover, I disagree with my
    colleague that the trial judge made a palpable and overriding error in finding
    that the terms of the CIP did not preclude that component of the respondents
    compensation from constituting part of his presumptive common law right to
    damages for breach of contract.

[127]

A palpable and overriding error is
    one that is plainly seen:
Housen v. Nikolaisen
, 2002 SCC 33, [2002] 2
    S.C.R. 235, at paras. 1-6. This standard is met if the trial judge
    misapprehended the evidence in that the findings are clearly wrong,
    unreasonable, or not reasonably supported by the evidence:
RBC Dominion
    Securities Inc. v. Crew Gold Corporation
, 2017 ONCA 648, 73 B.L.R. (5th)
    173, at para. 29 (citing
L. (H.) v. Canada (Attorney General)
, 2005 SCC
    25, [2005] 1 S.C.R. 401, at paras. 55-56).

[128]

In my view, the trial judge did
    not make a palpable and overriding error. To the contrary, not only was the
    trial judges interpretation of the CIP a reasonable one, in my view it was
    correct.

[129]

The trial judge took into account
    all of the history and other contextual factors surrounding the respondents
    compensation while employed at RBC in interpreting his common law entitlement.
    As the trial judge found, the provision that allowed RBC to unilaterally
    discontinue the Plan, a particular mechanism of part of the compensation, does
    not contain clear language that has the effect of removing the employees right
    to receive compensation in an amount equivalent to what he would have earned
    through that mechanism during the period of reasonable notice:
Lin
, at
    para. 86 (citing
Taggart
, at para. 20).

[130]

The reason clear language is
    required is to ensure that the employee is bound only by what was understood
    and agreed to. There is no dispute that the respondent understood and agreed
    that the CIP could be terminated by RBC. However, he did not agree as a term of
    his contract that his compensation package would then no longer include
    participation in an incentive plan. Nor was there evidence that it was the intention
    of the parties that the clause that gave RBC the right to terminate the CIP
    would have that effect.

[131]

I agree with the trial judge that
    RBCs right to discontinue the CIP does not constitute the type of clear
    language that is required to limit an employees common law entitlement to
    damages in lieu of notice. It gives the company the business discretion and
    flexibility to continue or discontinue a particular mechanism of compensation
    linked to the companys investments. It does not speak to the employees
    entitlement to receive the level of compensation to which the employee is
    entitled.

[132]

While RBC could terminate the CIP
    pursuant to Article 9.3, it would have been required to offer the respondent an
    alternate comparable form of compensation, because the contract does not
    provide that the effect of the employers ability to terminate the CIP is that
    the respondents compensation would be unilaterally reduced by that amount, in
    this case about 50%. If RBC had terminated the CIP without offering alternate comparable
    compensation, that would have evinced RBCs intention to no longer be bound by
    the employment contract and would have amounted to constructive dismissal:
Potter
    v. New Brunswick Legal Aid Services Commission
,
2015 SCC 10, [2015]
    1 S.C.R. 500, at para. 30.

[133]

My colleague observes, and I
    agree, that inclusion of entitlement to the CIP was the product of an agreement
    between a sophisticated employer and a group of sophisticated employees. Had it
    intended to do so, the sophisticated employer in this case could have drafted a
    contractual provision that clearly stated that if it terminated the CIP, then
    the employees compensation would be reduced accordingly.

[134]

Further, it is difficult to
    imagine a sophisticated employee knowingly agreeing to continue in the position
    if the employer could, in its sole discretion, remove over 50% of the
    employees compensation, especially considering the CIP was intended to assist
    RBC CP in retaining and recruiting talented individuals to carry out its
    business objectives: Reasons, at para. 7.

Conclusion

[135]

I agree with the trial judge that
    the language of the CIP, and in particular Article 9.3, does not limit the
    respondents right to CIP or its equivalent as an integral part of his
    compensation. The trial judge did not err in law or commit a palpable and
    overriding error in his interpretation of the contract. There is therefore no
    basis to interfere with his decision. I would dismiss the appeal with costs.

K. Feldman J.A."

Released: DB JUL 18 2019





[1]

Similarly, in
Belton v. Liberty Insurance Co. of Canada
(2004),
    72 O.R. (3d) 81 (C.A.), a case relied upon by Mr. Manastersky, the underlying
    business of selling insurance policies continued, although the employer
    attempted to impose a new commission structure on the employee sales agents.



[2]
Although the plan in issue was subject to a partial wind-up that entitled the
    employee to certain statutory grow in rights, given the agreement of the
    parties on the quantification of damages this court did not have to consider
    the implication of the partial wind-up:
Taggart
, at para. 23



[3]

Mr. Manasterskys clear knowledge of the termination
    provisions in the 2000 Plan and 2004 and 2006 Mezzanine CIPs distinguishes the
    present case from one relied upon by Mr. Manastersky
, Doran v. Ontario Power
    Generation Inc.
, [2007] O.J. No. 4476 (S/C/). In that case, the clause
    permitting the termination of the incentive plan was not known to the employee:
    at para. 59.



[4]

Taggart v. Canada Life Assurance Co.
(2006), 50 C.C.P.B. 163 (Ont. C.A.).


