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Ontario executive awarded $430K as court criticizes ‘dense and lengthy’ language in employment contract

by HR Law Canada

An Ontario executive has been awarded nearly $430,000 in damages in a case where the court was heavily critical of overly complicated language in an employment contract.

Jack Maynard was employed by Johnson Controls Canada from March 2004 until June 2018. At the time of his dismissal, he was the most senior employee in Canada.

In 2014, during a company restructuring, his compensation plan was altered. From 2014 until the time of his termination, it consisted of base salary, benefits and a bonus and incentive plan distributed in the form of Restricted Stock Units (RSUs).

RSUs, the court explained, are a form of delayed bonus which eventually become freely trading shares of the corporation once they vest.

When Maynard was let go, his compensation consisted of a base salary of $203,000 per year. In 2017, the value of the RSUs he received was about $60,000 U.S. or about $76,000 in Canadian funds.

Termination provision in contract

Maynard’s employment contract contained the following termination provision:

14. JCCLP may terminate your employment anytime without cause, by providing you with only the accrued wages and vacation pay owing to you and subject only to any minimum entitlements to notice of termination (or termination pay in lieu of notice) and severance pay (if any) as may be required by applicable employment standards laws. Furthermore, during the applicable provincial employment standards statutory notice of termination period only, JCCLP shall be required to comply with the applicable employment standards legislation requirements relating to your benefit plans. For greater certainty, JCCLP shall not be required to continue any benefits coverage after the end of the applicable provincial employment standards statutory notice of termination period, except in accordance with this Annex A. Your employee share of contributions to such benefit plans, if any, will be deducted from the final payment(s) made to you by JCCLP.

15.  The working notice and/or pay-in-lieu of working notice and severance pay (if applicable) provisions in this Annex A include any and all entitlements, statutory or otherwise, and, without restricting the generality of the foregoing, any entitlements you may have to overtime pay, public holiday pay, vacation pay, commissions, bonuses, termination pay, severance pay or compensation in lieu of reasonable notice of termination at common law and against Johnson Controls Canada LP or its insurers for benefits of any kind, provided that you will be not be paid less than you are entitled to be paid under applicable provincial employment standards legislation.

16.  In addition, if JCCLP terminates your employment without cause and you sign a release in a form acceptable to JCCLP, JCCLP will provide you with a lump-sum payment equivalent to 4 weeks of pay based on your salary for each completed year of service with JCCLP, with a minimum payment equivalent to 4 weeks of salary and a maximum payment, inclusive of the payment in Paragraph 14 above, equivalent to 78 104 weeks’ of salary. Furthermore, after the end of the applicable provincial employment standards statutory notice of termination period, JCCLP will continue, for the number of weeks calculated in accordance with this paragraph 16, to make its regular employer contributions towards only your group extended medical and dental coverage only. Your employee share of contributions to your group extended medical and dental benefit plans, if any, will be deducted from the payment to be made to you by JCCLP in accordance with this paragraph 16.

Termination letter

On June 27, 2018, Maynard received a termination letter stating he would be paid $89,652.02 (less deductions and withholdings) – which was equivalent to eight weeks’ pay in lieu of notice and 14.3 weeks of statutory severance as provided by Ontario’s employment standards legislation.

Johnson Controls also said it would continue his medical, dental and retirement benefits for eight weeks.

It also said it would pay Maynard $225,132.12 (less deductions and withholdings) which was equivalent to another 56 weeks of pay and would also provide extended health and dental benefits for that 56-week period.

This amount would only be paid, according to the termination letter, if Maynard signed a multi-page release that was attached.

Maynard told the court he had been awarded RSUs in 2016 and 2017 which had not yet vested and had a value of $118,335.95. His understanding from the letter was that Johnson Controls did not intend to provide him with those funds.

“The sums the employer proposed to pay him as lump sum compensation were based only on his base salary and did not include the value of the RSUs which constituted about 37 percent of his compensation package,” the court ruling states. “The proposed release contained a waiver of any right to compensation for bonuses or profit-sharing or any other entitlements whatsoever.

Maynard refused to sign and filed a lawsuit.

The issues before the court

There were two main questions for the court:

  1. Did the wording in the employment contract limit Maynard’s entitlement to compensation to the amounts he was offered in the termination letter? Specifically, does the employer have the right to forfeit RSUs already earned and to exclude the value of RSUs from the calculation of pay in lieu of notice?
  2. If the employer’s calculation is correct, has Maynard forfeited the right to the lump-sum payment because he did not sign the release?

The employer’s position: Johnson Controls argued that, on a plain reading of the termination provisions above, Maynard was told he could be terminated without cause at any time and in that event he would be entitled only to the minimum entitlement under the Employment Standards Act applied to his base salary.

In that case, there is no entitlement to commission, bonuses or other compensation and Maynard would also have no right to claim common-law damages. It offered him a package on the basis of four weeks of pay for each year of service, but only if the release was signed.

The employee’s position: Maynard’s lawyers argued the termination provisions are ambiguous. They said, while there is a provision in the Share and Incentive Plan providing for the forfeiture of RSUs when employment ends, that provision was never brought to his attention and he was never shown a copy of that plan.

They urged the court to interpret the employment contract in a manner providing Maynard with full compensation for his losses during the notice period. Further, they said he should not be penalized for refusing to sign a release while he had a dispute with his employer and he is allowed to exercise his right to have the court settle the matter.

The ruling

The court honed in on the wording of the employment contract and whether it was sufficiently clear to limit the company’s liability to the salary portion of his compensation and only to the minimum entitlements under the ESA.

“There is no doubt the language could be clearer,” the court said.

It would have been simple to state in clear terms the intent.

“Instead, there are three dense and lengthy paragraphs which variously use the terms ‘wages’ and ‘salary,’ the court said.  “The paragraphs are comprehensible if carefully reviewed with a lawyer and by referring to the Employment Standards Act in which ‘wages’ is a specific defined term.”

The court also said there was no evidence Maynard was provided with a copy of the Share and Incentive Plan or that the forfeiture provisions were ever brought to his attention.

“Had the forfeiture provisions been brought to his attention… then those provisions might have formed part of his contract of employment,” the court said. “Here they were not brought to his attention, but even if they had been they contain an ambiguity because the “committee” has discretion not to forfeit the RSUs when the dismissal is not for cause.”

The court said it would not have been clear to Maynard that, in the case of termination without cause, he would be forfeiting any RSUs previously awarded to him but not yet vested.

It ruled that Maynard’s entitlement to compensation for termination without clause should have included the salary, benefits and the value of the RSUs during the notice period established by the contract – four weeks’ for every year of employment.

As for his refusal to sign the release, the court said it was “unreasonable to insist on a release if the amounts are in dispute.” Maynard was willing to sign a release once the proper amount has been determined by a court and the money has been paid, it said.

“It is one thing to insist upon a release once the amount has been agreed upon,” the court said. “It is quite another to draft a contractual provision that requires the employee to accept the employer’s calculation as a condition of receiving the compensation.”

The court awarded:

  • $225,135.12 as calculated by Johnson Controls for the additional base salary owing above statutory minimums already paid
  • $92,348.08 for RSUs that had been awarded and forfeited.

There was disagreement as to how the bonus should be calculated. Maynard asked for a three-year average, whereas Johnson Controls said two years would be more appropriate. That is because his terms of employment changed significantly when he was promoted. The court sided with the employer on this point.

The two-year average was US$67,784 and the exchange rate of 1.2803 generated a figure of $86,783. Using that average, the additional bonus amount owing would be $93,459.54. He was also entitled to the value of his benefits which was $22,513.52.

The total amount awarded was $427,891.18 plus pre-judgement interest.

For more information see Maynard v. Johnson Controls Canada, 2022 ONSC 3862 (CanLII)

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