2009 CanLII 64183 (ON S.C.)7

Mathieson, a 58 year old investment banker, was dismissed from his position at Scotia Capital after working there for over 30 years. Throughout his time at Scotia Capital, Mathieson received performance based bonuses. In awarding these bonuses, Scotia evaluated employees using criteria: financial, client, operational, and interpersonal performance. In 2006, Mathieson received a substantially reduced bonus ($360,000) as compared to those that he had received in previous years (as much as $1.1 million). Scotia determined that the bonus was appropriate because of Mathieson’s poor performance throughout the previous year.

Mathieson began to grieve the issue of his reduced bonus with his superiors. The combination of Mathieson’s poor performance and his unrelenting grievance of his bonus eventually led to his dismissal. At the time of his termination, Mathieson was offered an 18 month severance package. Matheson rejected this offer and sued Scotia for wrongful dismissal.

The trial judge considered three main issues in determining what damages, if any, Mathieson was entitled to as a result of his reduced bonus and dismissal. Those issues were: 1) whether or not the bonus was unfair; 2) what notice period was required in light of the circumstances; and 3) whether there was bad faith on the part of Scotia, giving rise to Keays damages8.

The fairness of Mathieson’s bonus was the first issue evaluated by the Court. The judge noted that Mathieson’s bonus was a discretionary cash award which could be decided by Mathieson’s employer, so long as the process through which their discretion was applied was reasonably exercised. Such a decision is reasonable if the process employed to award the bonus was reasonable, if the factors considered in the bonus assessment are deemed to be relevant and material to such an assessment, and if the manner of adjudication was consistently applied among the company’s bonus recipients. The Court noted that it is an implied term of the employment contract that bonuses are awarded according to the application of “fair and reasonable criteria … [in a] fair and reasonable process”9. Justice Code ultimately concluded that Matheson failed to establish that his bonus was awarded unreasonably or unfairly, especially in light of his poor performance over the previous year.

In relation to the second issue, recall that Mathieson was offered 18 months salary and benefits in lieu of notice. Mathieson took issue with this offer because the majority of his remuneration was the result of the substantial discretionary bonuses that he received. Mathieson’s base salary was $140,000 a year, however his average bonus while working in the position from which he was dismissed was $793,333.

The traditional common law factors used to determine what constitutes reasonable notice were stated in Bardal v. Globe & Mail Ltd.10 and include: character of employment, length of service, the age of the employee, and the availability of similar employment with regard to the experience, qualifications, and training of the dismissed party. This approach is intentionally flexible, however the notice period typically does not extend past 24 months unless exceptional circumstances exist.11

Applying the above factors, the trial judge found that Mathieson was entitled to a notice period of 24 months. No case law supported Mathieson’s assertion that he was entitled to a period greater than this. Additionally, Scotia was responsible for paying Mathieson his bonus throughout the 24 month notice period12. In determining the quantum of the bonus owed to Mathieson, the judge declined to find that the bonus of $360,000 was determinative of what Mathieson would have received in future years. Instead, Mathieson was awarded a bonus of $460,000 for each of the two years pay in lieu of notice.

The claim for Keays damages was novel in that it did not arise as a result of mental distress. Instead, Mathieson argued for Keays damages in light of the economic loss he suffered as a result of Scotia’s bad faith termination of his employment. Mathieson argued that he would have remained in his position until age 70, but for Scotia’s bad faith in terminating him. Counsel for Mathieson argued that such damages were appropriate, arguing Hadley v. Baxendale13, provided grounds for awarding damages relating to the reasonably foreseeable consequences of Scotia’s breach.

The Court firmly rejected this argument on two grounds. First, the principle from Hadley v. Baxendale14, relates to remoteness of damages rather than contractual obligation. Second, Keays damages may be available to a dismissed employee who suffers undue harm. Either argument offends the well known principal that terms of employment are indeterminate, and either party retains the right to terminate the contract. In other words, Mathieson was not guaranteed employment by Scotia for life, and was not entitled to damages because of an unfounded expectation that he would continue as their employee.