The Ontario Superior Court of Justice’s decision in Boyer v. Callidus, 2024 ONSC 20 (“Callidus”) serves as a helpful reminder to employers of the importance of carefully drafting, documenting, and communicating contractual terms of employment.

By way of background, the Plaintiff in Callidus, claimed significant damages in connection with unpaid vacation pay, deferred bonuses, and stock option entitlements. The Defendant employer attempted to rely on the terms of its vacation policy and incentive compensation plans to support that the Plaintiff did not have such entitlements on termination of employment. However, the Court found that the vacation policy and incentive compensation plans were either deficient to limit such entitlements, or were insufficiently documented and communicated to the Plaintiff, such that they could not be relied upon by the Defendant.

As a result, despite finding that the Plaintiff was not constructively dismissed and had, instead, voluntarily retired, the Court ordered the Defendant to pay a total of $1.8 million in damages to the Plaintiff. The Court’s key conclusions are outlined below.

Background

The Plaintiff commenced his employment as a Vice President of Underwriting and Portfolio Management with the Defendant, Callidus Capital Corporation, in July of 2009. In addition to his base salary, the Plaintiff was entitled to participate in the Defendant’s deferred bonus program and its stock option plan, and was entitled to four weeks of paid annual vacation.

The Plaintiff’s incentive compensation entitlements were structured as follows:

• Deferred Bonus: The Plaintiff was to be awarded an annual bonus, a portion of which would be withheld. The Defendant was to distribute 50% of the withheld bonus amounts in each of the two following years. The deferred portion of the bonus was to accrue interest at the quarterly rate of 3%. The Defendant’s “Bonus Deferral Policy” included a requirement that an employee be “actively employed” at the time of distribution of the withheld bonus amounts. The Plaintiff’s evidence was that he was awarded significant bonuses for 2014 and 2015, a portion of which were withheld and not paid on termination of employment.
• Stock Options: The Defendant’s stock option award program was governed by a stock option policy circulated in 2014. This policy included, among other things, a vesting provision in which a deceased employee’s stock options would become exercisable within 180 days of the employee’s death. However, the plan was silent on the treatment of an employee’s unvested options in the case of retirement. An Amended and Restated Incentive Plan dated May, 2016 stated that the expiry date for any unvested portion of options would be the termination of an employee’s employment.

In 2015, the Plaintiff advised the Defendant of his intention retire at the end of 2016. Following his provision of notice of retirement, the relationship between the Plaintiff and the Defendant began to deteriorate, with the Plaintiff subsequently alleging that he was subject to abusive conduct and a poisoned work environment. By the end of the summer of 2016, the Plaintiff’s portfolio accounts were transferred to other employees. Following that, the Defendant declined the Plaintiff’s request to take 24 weeks of accrued vacation.

On or around the Plaintiff’s last day of work in early September, 2016, the Plaintiff provided a letter to the Defendant stating that he was retiring early due to an increasingly toxic work environment and abusive treatment which left him with no choice but to retire. The letter also took issue with the Defendant’s failure to honor the Plaintiff’s accrued vacation pay entitlements and with its failure to compensate the Plaintiff on termination for his deferred bonus and unvested options.

Legal Proceedings

The Plaintiff commenced legal action against the Defendant seeking damages in connection with: (i) alleged constructive dismissal; (ii) 24 weeks’ accrued but unpaid vacation pay; (iii) two years’ deferred and unpaid bonuses; and (iv) the vested shares underlying earned and unvested stock options that the Plaintiff claimed should have vested on termination of his employment.

On the Plaintiff’s motion for summary judgment, the court dismissed the Plaintiff’s claim that he was constructively dismissed on the basis that i) a reasonable person would not have felt that the essential terms of his employment contract were being substantially changed by the transfer of accounts, in light of the Plaintiff’s notice of retirement; and ii) much of the abusive conduct raised by the Plaintiff to support that he was constructively dismissed was not particularized, or did not amount to a breach of the employment contract. However, as detailed below, the Court found in favour of the Plaintiff in respect of the unpaid vacation, deferred bonus, and stock option claims.

The Court’s Decision

a) Unpaid Vacation

The Plaintiff argued that he had been allowed to “roll” his unused vacation to subsequent years. The Court rejected the Defendant’s position that (i) the Plaintiff had been paid unused vacation (there was no record of any such payments); and (ii) its employees were subject to a “use it or lose it” vacation policy, by which all unused vacation would be forfeited by the end of the calendar year. There was no documentation or communication to support that any such policy existed despite the Defendant’s claim otherwise.

In the absence of any evidence of a “use it or lose it” vacation policy, the Defendant was ordered to pay 22 weeks’ vacation pay based on the Plaintiff’s annual base salary of $220,000, for a total of $93,076.92 (two weeks’ vacation having been taken).

b) Deferred Bonus

The Court rejected the Defendant’s position that: (i) the terms of the Bonus Deferral Policy, including the requirement for active employment at the time of payout, applied to the Plaintiff (the “active employment” requirement was, in any event, found to be drafted in a manner that was unenforceable); and (ii) that the Plaintiff was advised of the existence of this policy. In addition, the Court held that the Plaintiff had not agreed to the terms of the policy. There was no evidence that the Plaintiff had been shown the Deferred Bonus Policy or that the Plaintiff was ever told that he would not receive any amount for deferred compensation if he was not employed when payment of the bonus became due.

Accordingly, the Plaintiff was found entitled to the entirety of his deferred bonus for the two years preceding his retirement, in the amount of $525,000, together with 3% quarterly interest up to the date of the Court’s decision.

c) Stock Options

The Plaintiff argued that he was entitled to the vesting of all stock options held by him on the basis that (i) the documents provided to him in connection with stock options were silent as to the treatment of such options upon retirement; (ii) he had not seen the Amended and Restated Incentive Plan upon which the Defendant attempted to rely; and (iii) it had been verbally confirmed to him that on retirement, his unvested stock options would be treated the same way as in the case of death (i.e. unvested stock options would vest upon retirement). The Court found the Plaintiff’s evidence in support of these claims to be credible, and agreed that the stock option documentation was insufficient to limit the Plaintiff’s entitlements on termination.

As a result of the above, the Plaintiff was found to be entitled to damages reflecting the value of the shares underlying the unvested stock options which should have vested at the time of termination, in the aggregate amount of $1,213,856.98.

Next Steps

The Callidus decision reminds employers to ensure the terms of any policies or plans, particularly those pertaining to compensation and termination entitlements, are drafted with precision and expressly communicated to employees. Employers should take this opportunity to review their plans and their communication practices. Further, should an employer wish to introduce a new compensation plan or policy, or seek to amend existing terms, it is critical that the employer properly document and communicate same to its employees.

[View source.]