It has been some time since the Supreme Court of Canada (“SCC”) last addressed employment-law related issues, but it recently issued two noteworthy decisions that may be relevant to employers. In Fraser v. Canada (Attorney General), 2020 SCC 28, the SCC arguably set the bar lower for employees to establish sex discrimination for the purposes of human rights legislation. In Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26, the SCC considered the Ontario Court of Appeal’s traditional employee-friendly approach to awarding bonuses following a termination of employment, ultimately adopting and confirming that approach.
Fraser v Canada (AG)
In Fraser, the SCC considered a case involving three female RCMP officers, each of whom participated in a job-sharing program (i.e., they shared the equivalent of one full-time RCMP position) after returning from parental leaves of absence. Participants in the job-sharing program were not entitled to purchase full pension credits related to their job-sharing service, and as such, their pension benefits were proportionally less than the pension benefits available to other full-time RCMP officers. The evidence suggested that most people participating in the job-sharing program were women. The three female RCMP officers brought a Charter application alleging that the RCMP’s pension plan discriminated against them on the basis of sex contrary to s. 15 of the Charter.
The Federal Court of Appeal dismissed the claim, concluding (among other things) that any disadvantage incurred by the claimants was caused by their own choices – i.e. to participate in the job-sharing plan – not by their sex.
In a split decision, the majority of the panel concluded that the pension plan was discriminatory on the basis of sex. While the law appeared neutral on its face, the majority concluded that the pension plan disproportionately impacted women and perpetuated their historic disadvantage. This is known as adverse impact discrimination. The majority’s decision was based on the dominant interpretation that human rights legislation promotes substantive equality (equality of outcome) rather than formal equality (equality of opportunity/treatment):
Adverse impact discrimination occurs when a seemingly neutral law has a disproportionate impact on members of groups protected on the basis of an enumerated or analogous ground… At the heart of substantive equality is the recognition that identical or facially neutral treatment may frequently produce serious inequality.
The majority held that the policy led to unequal outcomes for women with children who decided to work part-time to balance their childcare obligations, arguably as a result of pre-existing cultural expectations and inequalities. The majority held that it was irrelevant to the analysis that the women had personally decided to participate in the job-sharing program, or that their decision to do so arose from pre-existing inequalities unrelated to governmental action.
A dissenting minority of the panel disagreed and would have dismissed the appeal. The dissenting judges held that, among other things, the job-sharing program was instituted precisely in part to address inequality, and criticized recent discrimination jurisprudence [emphasis mine]:
While the pension plan does create a distinction that, in its impact, is based on sex, its effect cannot be to hinder government efforts to address pre‑existing inequality. Any disadvantage the claimants face is caused not by the impugned provisions or any government action, but by the unequal division of household and family responsibilities and social circumstances such as the availability of quality childcare. Substantive equality has become almost infinitely malleable, allowing judges to invoke it as rhetorical cover for their own policy preferences in deciding a given case. This discretion does not accord with, but rather departs from, the rule of law.
While this decision was made in the context of the Charter and not provincial human rights legislation, the principles underlying substantive equality are generally applied and referenced by provincial human rights tribunals across Canada. As such, the primary takeaway from the Fraser case is that human rights law continues to evolve incrementally, such policies which may appear neutral could be insufficient to avoid liability in some cases. This renders compliance all the more difficult for employers.
Matthews v Ocean Nutrition Canada Ltd.
Matthews was an appeal of a Nova Scotia Court of Appeal wrongful dismissal decision. The employee, Matthews, was a senior manager with approximately 14 years’ service who participated in a long-term incentive (LTIP) plan that entitled participating employees to a bonus if, among other things, the business was sold. Under the LTIP, a precondition to entitlement was that the employee remained “actively employed” on the payout date. The business hired a new executive that began to marginalize Matthews and reduce his role. The executive also consistently lied to Matthews about his long term prospects with the business and his status. Matthews eventually resigned and accepted another job. Thirteen months after he left, the business was sold. Matthews sought a payment under the LTIP, but since he was no longer “actively employed” the business refused to pay Matthews any bonus. Matthews sued for wrongful dismissal, alleging that the executive’s conduct towards him before his resignation was a constructive dismissal.
At trial, the judge held that Matthews was constructively dismissed, awarded him a 15-month notice period, and awarded him damages exceeding $1M for the LTIP payment he would have received if he had remained employed during the 15-month notice period, less his mitigation earnings. On appeal, the Nova Scotia Court of Appeal reversed the LTIP award, concluding that the LTIP unambiguously deprived Matthews of the opportunity to receive an LTIP payment after his employment ended.
The SCC unanimously restored the LTIP award, adopting Ontario Court of Appeal jurisprudence regarding employee bonus entitlements following termination of employment (see eg. Paquette v Tera Go, 2016 ONCA 618). The SCC confirmed that when determining an employee’s entitlements to a bonus during the common law notice period, courts should “ask two questions”:
Courts should accordingly ask two questions when determining whether the appropriate quantum of damages for breach of the implied term to provide reasonable notice includes bonus payments and certain other benefits. Would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period? If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right?
The SCC held that under this approach, the “active employment” requirement in the LTIP plan did not disentitle Matthews to a damages award for the lost bonus, it only disentitled Matthews to the bonus itself. There is a clear legal difference between the common law right to damages and the contractual right to a bonus. Unless the bonus plan disentitles the employee to the common law right to damages (which an “active employment” requirement does not do), the employee is presumed to be entitled to damages for the lost bonus during the notice period in a wrongful dismissal claim.
The key takeaway from Matthews is that the highest court in Canada has now conclusively adopted the Ontario Court of Appeal’s approach to bonus entitlements for terminated employees, and that approach renders many “active employment” requirements arguably unenforceable to limit an employee’s entitlements in a wrongful dismissal claim. Employers seeking to restrict their wrongful dismissal liability for bonus-eligible employees should have their bonus plans reviewed by counsel to ensure that the language sufficiently protects the business.