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The case of Styles v Alberta Investment Management Corporation, 2017 ABCA 1, [Styles], began with the termination of the respondent without cause. The question in this case was: what sort of compensation is the respondent entitled to under his employment contract? At first glance, this case may seem like it falls squarely in the realm of employment law, however, the?Styles decision’s?biggest impact is actually on contract law.
The respondent moved from Ontario to Alberta in 2010 for work as an investment manager. His employment was governed by a written employment contract, which outlined his base salary along with bonuses, under either the Annual Incentive Plan or the Long Term Incentive Plan (LTIP)—the latter being the focus of this case.
The contract stipulated that the respondent could be terminated without cause but was entitled to payment in the event of termination per a given formula (i.e. one month’s salary per year of service; minimum of three months and maximum of six). The LTIP was, as per one variation of the contract (it changed with slight modifications every year):
“Designed to motivate, recognize reward and retain senior management and other key employees of AIMCo by providing a performance oriented long-term incentive that will reinforce alignment of client and employees interests and will enhance AIMCo’s ability to attract and retain key talent. Objectives are to recognize sustained performance, minimize risk of paying for transitory performance, evaluate investment performance over a longer performance cycle and focus employees on long term strategies and objectives” (Styles, para 4).
The LTIP was laid out in detail in a 19-page document that was a part of the respondent’s employment contract. Included in those 19-pages was a slightly complicated provision: for every year the individual was employed with the company, he or she would be given a “Grant” that was expressed in a dollar amount, but was not actually paid or payable: “it was more an ‘allocation’ or ‘base calculation’ that would eventually be used in the bonus formula” (Styles, para 5). This meant that there were no bonuses payable under the LTIP until at least four years of employment had elapsed. This employment must have be considered “active” as per the employment contract (and any period of reasonable notice required in lieu of notice of termination did not qualify as being actively employed) and “may be forfeited” upon the termination date that was specified by the company in the termination notice.
In addition, the Participation Agreement attached to the LTIP stipulated that: if the employee is terminated with or without cause and with or without reasonable notice, he or she had no rights to any particular grants; and that he or she would not be entitled to recover damages nor be paid any benefits or recover any compensation that he or she may have been entitled to under the LTIP if he or she was still actively employed.
The (not so) shocking point of issue in Styles: the respondent was only employed with the company for three years. Meaning, that he would not have been an active employee when the four-year qualifying marker for the LTIP grants occurred. The trial judge found, however, that the bonuses were payable.
The trial judge in this case expanded this to “include a related “general organizing principle” described as “a common law duty of reasonable exercise of discretionary contractual powers” (Styles, para 9). One of the tasks for the Court of Appeal of Alberta was reviewing this expansion using the standard of correctness.
On a simple and plain reading, the contract is quite clear in its expectation of bonuses when someone is employed for less than four years. Thus, the respondent had to show that something in law, outside of this plain reading, should be considered in calculating his compensation post-termination. The trial judge reasoned that the respondent was entitled to the bonuses regardless of the plain wording of the LTIP because of the application of the “common law duty of reasonable exercise of discretionary contractual powers”.
The Court of Appeal’s decision goes into some detail about the discretion of the employer to deny the respondent the benefit of the grants—even though he was not actively employed for four years or more—and to terminate the respondent without cause. Although the outcome in Styles is significant to all the involved parties, from a broader perspective, the most interesting and valuable contribution of the Styles decision is its analysis of the recent Bhasin decision by the Supreme Court.
Styles’s Clarification of Bhasin
Bhasin v Hrynew, 2014 SCC 71, [Bhasin] was groundbreaking for multiple reasons. In particular, it was the first time the Supreme Court of Canada recognized honesty and good faith in the performance of contract obligations as a “general organizing principle” of contract law. Since then, we have seen a number of cases, both inside and outside of employment law, dealing with the Bhasin principles and trying to make sense of the uncertainty that Bhasin brought into an area of law that begs for certitude.
The Alberta Court of Appeal decision in Styles is one such effort to bring clarity to Bhasin. The Styles decision’s interpretations and additions of Bhasin are as follows:
- Bhasin did not include a general principle of “reasonable exercise of discretion” in contractual performance, which means that the judge in Styles erred in making this expansion: “This radical extension of the law is unsupported by authority and contrary to the principles of the law of contract” (Styles, para 49).
- Bhasin was not about the negotiation or the terms of the contract—the principles set out in the case related to the performance of the contract. The courts are not now responsible for examining contracts and deciding if they were negotiated in good faith and are fair and reasonable, honest, and/or capricious.
- Styles notes that not paying the bonuses where the preconditions are not met (i.e., where an individual had not met the four-year requirement, as in the case of the respondent) is not representative of dishonesty on the part of the employer: “Declining to perform contractual covenants and promises that were never given is entirely reasonable. Refusing to pay a bonus that is not payable is not dishonest” (Styles, para 52).
- Lastly, Bhasin is not an open invitation for the courts to examine the rights granted within a contract to determine if they are fair, nor are courts to look at the consequences of performance being “more or less advantageous to either party than that party might have hoped or desired” (Styles, para 54).
These, along with other issues examined in Styles, are important clarifications to the law of contracts. Styles gains its significance from offering these clarification on the landmark case of Bhasin, which changed the way contract law is understood on a national level. When big-ticket cases like Bhasin surface, it is interesting to observe the cases that immediately follow. These cases are forced to grapple with any uncertainty that the big-ticket case created, and thus they often play a direct role in shaping what the groundbreaking decision will mean in practice in the decisions that follow. This explicit clarification of novel and radical decisions, such as Bhasin, are helpful to ensure transparency in the way the common law unfolds, by way of clear understanding of how the law is being understood by lower court judges. This, in turn, allows for the law to evolve and grow accordingly as an ongoing conversation with open channels of communication.