Following the SCC’s decision in Bhasin, there was uncertainty regarding the application of the common law duty to perform contractual obligations in good faith to the employment law context. The Court of Appeal of Alberta’s decision in Styles provides clarity on the application of Bhasin in the context of both termination and entitlement to bonuses in the employment law context.
The plaintiff employee was party to a written employment contract that provided for a base salary plus eligibility for a bonus after four years of employment, and only if the employee remained actively employed at the time of vesting. The employee was terminated prior to the four-year mark and was denied access to bonus payments by the employer. The issue was whether the employee was entitled to bonus payments under the plan.
The trial judge, relying on an extension of the Bhasin decision, held that courts have the ability to review contractual terms for fairness to both parties, despite the clear intentions of the parties to otherwise limit or establish their rights. Both the decision to disqualify the plaintiff from receiving any part of the bonus under the LTIP, and the decision to terminate the plaintiff’s employment constituted a clear exercise of discretion by the employer that was subject to review under the common law duty of reasonable exercise of discretionary contractual powers, established in Bhasin. The language was held by the trial judge not to sufficiently limit the employee’s entitlement to bonus payments under the LTIP.
The appeal was allowed. The Court of Appeal did not share the trial judge’s view that there was discretion involved in the provision of bonuses under the text of the LTIP, holding the wording of the LTIP was sufficient to limit the employee’s bonus to the terms established within, and Styles could not show any legal reason as to why he should otherwise be entitled to bonus payments under the LTIP.
We now have good authority that Bhasin does not give courts a license to assess the fairness of contractual provisions, which is the essence of the trial judge’s decision. The case provides sound precedent that employers in Alberta can properly limit employee entitlements where there is a clear and reasonably written termination provision in an employment contract.
Written with the assistance of Tyler R. Raymond, student-at-law.