The issue of what a court will do when faced with a claim for variable compensation in the form of a Carried Interest Plan, much like a profit sharing plan, in which profit was recognized some 3-7 years following the initial investment, came before the Honourable Mr. Justice Monahan recently. In a decision released in February, Monahan J. held, much like bonus payments, this form of variable compensation, or the lost opportunity to earn this form of variable compensation, was payable for the duration of the notice period, in this case 18 months.

The employee had been employed as a Managing Director, Mezzanine Fund. The position entailed sourcing investment opportunities for the bank’s capital in mezzanine debt, performing due diligence, strategic analysis and closing of transactions. A portion of the compensation for the role was tied to performance of those investments under a compensation plan called the Carried Interest Plan (“CIP”). After 13 years, the employer decided to move the mezzanine financing to a different branch of the organization and restructured. At issue, amongst other things, was the appropriate notice period, and whether there should be any compensation for the CIP for the notice period.

It was found that the CIP formed an ‘integral’ part of the employee’s compensation, and it was the largest component of his compensation at over 50% of his income. While payments were not made annually, the entitlement accrued annually throughout the employee’s 13 years of service.

In reviewing the terms of the CIP, Monahan J. found there to be no language to oust the common law presumption; namely there was nothing expressly excluding entitlement during the notice period, as set out in Lin v. Ontario Teacher’s Pension Plan Board.

The fact that the employer terminated the CIP several months following the termination of the employee did not alter the analysis, as the CIP was in place as of the time of the employee’s termination. The Court found that it would have likely amounted to a constructive dismissal to terminate the CIP while the employee was employed, and under that scenario damages for lost participation in the CIP would have also been awarded.

The Court awarded damages accordingly for this portion of the claim at just under $1 million.

Trial counsel was Nancy Shapiro for the employee. This decision is now under appeal. No hearing date is set.

Manastersky v. Royal Bank of Canada et al, 2018 ONSC 966 CanLII.