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Incentive Plans In Alberta Can Still Limit Entitlements to “Actively Employed” Employees

The recent Queen’s Bench decision Styles v. AIMC was widely discussed given that it found an employee was entitled to LTIP awards vesting after termination despite clear contractual language requiring the employee to be “actively employed” on the LTIP payout date.  The Trial Judge found that dismissing an employee without allowing his LTIP grants to vest was “bad faith” in contractual relations (as an unprecedented extension of the principles established by the Supreme Court of Canada in Bhasin v Hrynew).

The Alberta Court of Appeal decisively overturned this decision and the reasoning behind it stating:

[65]       The discussion about “a common law duty of reasonable exercise of discretionary contractual powers” turned out to be an unfortunate distraction. The trial judge found at para. 115 that there was no bad faith in the respondent’s termination, and he produced no evidence it was related to his bonuses. The terms of the Long Term Incentive Plan are clear, and do not involve any exercise of discretion. A clear feature of the Long Term Incentive Plan is that bonuses do not vest for four years. It must have been obvious to the respondent that unless his employment with the appellant lasted for at least four years he would never receive any bonus under this Plan. Specifically, if he was terminated without cause within four years, any expectation of a bonus would be lost. Those are the terms of employment to which the respondent agreed. If he wished to earn some bonuses under the Plan in the eventuality that he was terminated without cause within four years, it was incumbent for him to negotiate such a provision. Not having done so, he cannot now ask the court to retrospectively include such a term on the basis that such a term might be “reasonable” or “fair”…

In our view, the Alberta Court of Appeal was correct in allowing the employer’s appeal.  Alberta employers should be able to lawfully limit entitlements under long term incentive compensation plans to employees who continue to be employed up until the expected payout date.  As we have previously discussed on this blog, Alberta employers can also limit severance entitlements generally to the minimum entitlements under the Alberta Employment Standards Code.  The key in each case is to have contracts in place that contain clear wording, keeping in mind that these types of clauses are very technical and need to be drafted with precision, to avoid being declared invalid or unintentionally violating the minimum standards of the Code. Long story short, this case is and can be a win for Alberta employers.



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