Limiting Long-Term Incentives upon Termination & the Impact of the Pandemic on Notice Periods

The Ontario Superior Court’s recent decision in Marazzato v Dell Canada Inc. provides important guidance on two key issues: (1) the onus on employees to prove the pandemic’s negative impact on their ability to mitigate; and (2) the type of language required to limit an employee’s entitlements to long term incentives upon termination.

Background

The Plaintiff, Mr. Marazzato, brought an action for wrongful dismissal against his former employer, Dell Canada Inc. (“Dell”). Mr. Marazzato claimed that he was entitled to 20 months reasonable notice at common law based on the fact that he was a 59 year old employee, with 14 years of service, making $465,695.65, who had been employed as Senior Manager Director Sales at the time of termination and had to look for comparable employment during an economic downturn caused by the COVID pandemic.

Dell took the position that Mr. Marazzato’s reasonable notice period should be limited to 16 months and disputed his entitlements to Sales Target Incentives (“STI”) and Long Term Incentives (“LTI”) during the common law reasonable notice period.

The Two Key Issues

The Court found Mr. Marazzato was entitled to a reasonable notice period of 18 months based on its review of the Bardal factors and addressed the two key issues listed above as follows:

  1. The Court expressly stated that although it was asked to take into consideration the economic downturn caused by the COVID pandemic as part of its reasonable notice analysis, there was “no evidence of same” before it and that “it would not be appropriate to speculate on that submission without evidence”, so this factor did not support a longer notice period.
  2. The Court also found that the language of the LTI Award Agreement was “sufficiently unambiguous to exclude this part of Mr. Marazzato’s compensation from his damages arising from Dell’s breach in providing reasonable notice”. The language was as follows:

a) the acceptance of the LTI Award Agreement was voluntary and not a condition of employment;

b) such payments were not compensation for services rendered and were outside the scope of the employment agreement; and

c) the units are “not to be used for calculating any severance, resignation, redundancy, end of service payments, bonus, long-service awards, pension or retirement benefits or similar payments, and you waive any claim on such basis”.

Key Takeaways

The Court’s decision in Marazzato v Dell Canada Inc. should provide employers with comfort that employees cannot merely assert that the economic downturn caused by the COVID pandemic warrants a longer notice period, without evidence to support the fact that such economic downturn actually impacted their search for comparable employment so that the court can make a “concrete determination” on this issue.

Further, the Court’s decision provides employers with an example of the type of clear and unambiguous language required to limit an employee’s entitlement to long term incentives upon termination. Prudent employers should ensure that grant agreements and plan documents regarding the same, unambiguously address entitlements upon termination in compliance with applicable laws and clearly oust the employee’s claim to damages in lieu of their entitlements under such agreements and/or plans during the common law reasonable notice period.

Employment Law

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