Employer Good Faith Duty Applies to Incentive Plan Payout

Posted by Johannes Schenk on December 20th, 2016 — Posted in Employment Law, Labour Law, Litigation

Styles v Alberta Investment Management Corporation, 2015 ABQB 621 (CanLII), concerns an employer’s duty of good faith in the context of an incentive plan payout. Here the employee was terminated shortly before the incentive plan payout date. Long story short version: bad move.

The Court had this to say:

[66]This duty of reasonable exercise of discretionary contractual power is not a limitation on “the right of an employer to determine the composition of its workforce”; Bhasin at paras 53-54. It is designed to deal with both the unfair manner of termination and the consequences that flow from unduly insensitive conduct of an employer when dismissing an employee. In some situations, where the termination deprives an employee of the right to receive earned performance bonuses, grants, or awards, then the exercise of the discretion to terminate without cause becomes arbitrary or capricious when the employer creates circumstances under which the employee would be unable to receive the bonuses or other benefits and provides no reasonable or meaningful explanation for such deprivation.

The termination in this case deprived the employee of a benefit in a manner contrary to the duty of good faith contractual performance. The case also puts forward an excellent contingency analysis on damages resulting from the failure to pay out on the incentive plan.

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