Shares & Stocks
In Unique Broadband Systems, Inc. (Re), 2014 ONCA 538, the Ontario Court of Appeal ruled that a director of a company breached his fiduciary duties in approving an excessive compensation package for himself and the other directors and that his actions were not protected by the business judgment rule.
This guide provides an overview of the most commonly used employee share incentive plans and the main considerations when structuring, implementing and maintaining such incentives, including considerations with respect to securities laws, stock exchange requirements, employment law and tax. The guide also addresses selected "hot button" issues such as "backdating" and re-pricing of options as well as providing specific examples of how stock options are taxed.
Employee-shareholder dismissed for cause awarded damages for improper invocation of Shareholders' Agreement
In Link v. Venture Steel Inc. and Ruben Rivas, 2010 ONCA 144 the Ontario Court of Appeal upheld a decision in which a former Vice-President of Sales was awarded more than $4 million in damages, most of which related to company shares the employer had improperly purchased, pursuant to a Shareholders' Agreement, at the time it dismissed the employee for just cause.
The case also addressed the issue of how non-competition and non-solicitation provisions in a Shareholders Agreement will impact on a court's analysis of whether an employee's mitigation efforts were reasonable.
Lawyers at Fasken Martineau has prepared a summary of the case ("Beware the Perils of Firing Employee-Shareholders", June 22, 2010) that can be found here.
In Waterman v. IBM Canada Limited, 2010 BCSC 376, a 65 year old employee with 40 years of service was awarded a 20 month notice period. At the time of dismissal, the employee had had no plans to retire.
In reaching its decision, the BC Supreme Court addressed the following issues of interest:
- the impact of the character of employment on the notice period;
- the impact of health problems on the notice period;
- compensation for lost stock purchases over the notice period; and
- whether pension benefits received over the notice period should be deducted from the damages award.
Character of Employment
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Fraser Milner Casgrain LLP has published "The Wrongful Dismissal Manual" (October 2009), which is "designed to provide employers with guidance on the general statutoryand common law principles applicable whenever an employee's employment is terminated in Canada's four main business jurisdictions: British Columbia, Alberta, Ontario and Quebec."
Global consulting firm Watson Wyatt's August 2009 survey of 53 Canadian companies reveals that 28 percent are changing their pay mix – mostly to put more emphasis on
bonuses and performance shares, with less focus on stock options.
Robert Levasseur, senior consultant of executive compensation at Watson Wyatt, states in the September 17, 2009 press release that:
“Stock options are certainly under pressure during a recession where
many organizations have seen their share price plunge by as much as 40
per cent. Many executives have been left with worthless underwater
options and current valuations call for very high option grants which
would be highly dilutive to un-accepting shareholders,”
“The employee stock option plan will remain a staple in Canadian
executive pay plans because it is the only long term incentive vehicle
that offers a tax advantage to plan participants. However, as
organizations regroup, it is not surprising to see a shift towards
annual cash base incentives.”
Notice period reduced on basis employee might find new employment after trial but before end of notice period
In the Jamieson v. Finning International Inc. 2009 BCSC 861 wrongful dismissal case, the 53 year old former employee had 20 years of service and had been the Millyard Systems Manager when his employment was terminated due to 'economic events". The company offered him a severance package based on a 12 month notice period, which he rejected.
The BC Supreme Court awarded him a notice period of 19 months, but reduced it by one month in consideration of the fact that the legal action had been pursued by way of a summary trial just 6.5 months after the employee had been dismissed and the employee might find new employment before the end of the 19 month notice period
The parties were in agreement that the employee's compensation over the notice period should be based, among other entitlements, on $84,000 in base salary and a $10,920 annual bonus. read more »
"Downsizing and Sale of a Business Unit" is the title of a paper prepared by a lawyer at Clark Wilson LLP in Vancouver.
It provides a comprehensive overview of issues to consider when terminating/transferring employees as part of a corporate transaction and ends with a useful summary of "what the vendor wants" and "what the purchaser wants" in order to minimize their respective exposure to claims by employees.
BC Appeal Court reviews law on notice period for short service employees and rights under stock option plans
In Saalfeld v. Absolute Software Corporation, 2009 BCCA 18, the BC Court of Appeal addressed:
- the notice period owed to a short service employee; and
- an employee's entitlment to stock options during the notice period.
The employee's employment was terminated without cause after approximately nine months of service. She had held a senior software sales position, was 35 years old and earned a base salary of $60,000 with target earnings of $100,000 inclusive of commissions.
The BC Court of Appeal upheld the trial judge's award of a five month notice period, finding that it was not unreasonable given that it took the employee nine months to secure new employment.
However, in a statement that will bring comfort to employers, Madam Justice Huddart also stated that: read more »