Monday, April 26, 2010

Dismissed Employee Receives Millions in Wrongful Dismissal Action

Under most circumstances, an employer's liability to a wrongfully dismissed employee will be limited to what the employer would have paid the employee (or to the employee's benefit) for a period of time. Sometimes there will be a bit on top of that for moral damages. But every so often you get a circumstance where an employer's liability will increase immensely on the basis of what a third party would have provided based on continuation of employment through the notice period.

Some pension plans have threshold dates for benefits; if you wrongfully fire someone without notice, and their notice period would have crossed a pension threshold, then the employer could be liable to top up the pension indefinitely.

Likewise, if an employer prematurely terminates an employee's long-term disability benefits, and the employee becomes disabled during the notice period, the employer could be liable for payment of what the LTD benefits provider would have paid, until the employee is healthy again. If ever.

A recent case decided by Justice Parayeski
is a slightly different breed, but puts damages on a whole different level.

Mr. Taylor worked as an engineer for Research in Motion. You know, the Waterloo tech company that developed the Blackberry, which has since become a staple for most business folks throughout the world? Yeah, that's right, the company owned by Jim Balsillie, who has been trying to get another hockey team into this part of the Province... (Hey Jim, just so you know, I'm behind you on that one. My team hasn't won during my lifetime, and if you were to bring an NHL team to K-W, or even Hamilton...or how about Simcoe?...I'd cheer them on.)

Part of Mr. Taylor's remuneration included stock options which were to vest as of March 3, 2005. The option granted the right to purchase up to 40,000 shares at a share price of $5.78. That's right, $5.78 for RIM shares. As of March 3, 2005, the market value of a RIM share was $68.20. 40,000 of those. I'll let you do the math.

Trouble is that Mr. Taylor was fired in November 2004.

Let's set up a cast of characters here: At trial, Mr. Taylor was represented by Howard Levitt, whom I think it fair to say is Canada's foremost employment law expert. RIM was represented by Glenn Christie, of Hicks Morley, which is one of the more significant management-side labour/employment law firms in the Province, especially outside of Toronto. The Judge was Justice Parayeski, a fairly new judge. I had the pleasure of appearing before Justice Parayeski a few weeks ago; he seemed very reasonable. (And he ruled in favour of my client, so he must be a good judge, no?)

By the time trial came around (the decision indicates a trial date of October 2010...but I have a sneaking suspicion - don't ask me why - that this is an error, and should be October 2009), RIM was not taking the position that the termination had been for cause (the way this is phrased in the decision suggests that RIM had originally alleged cause). Everyone agreed that the notice period would have gone past the stock option vesting date. Everyone also agreed that Mr. Taylor would have exercised the stock option. (...I can't imagine why...)

There didn't appear to be any fight over what kind of damages might be payable in lieu of reasonable notice, or whether or not the employer should have to pay out for breaches of its duty of good faith and fair dealing (as used to happen quite often when an employer initially alleged cause but dropped the argument during litigation)...I suspect that any disagreement on such entitlements were so miniscule by contrast to the rest of the case that it wasn't worth fighting over.

The only issue was this: How are Mr. Taylor's damages quantified? The value of the stock options as of March 3, 2005? Or what the stock would be worth today? After accounting for a "gross-up" to reflect the differential tax treatment of pay in lieu of notice rather than the exercise of stock options, his damages as of March 3, 2005 would have been approximately $4.4 million. Calculated on the basis of the share value today (or rather, on October 2010 [sic]), the damages would have been approximately $11.6 million.

Justice Parayeski looked at the financial planning advice Mr. Taylor had received, and Mr. Taylor's motivations, and concluded that he would have cashed out $2.1 million immediately but held on to whatever was left. (He left the arithmetic to the lawyers to work out.)

Points to Consider

RIM would have had to have paid a significant amount in Mr. Taylor's exercise of the stock options in any event, but ended up having to pay an additional 46% for the gross-up. With these amounts, that is a vast amount of money by most standards.

That an action for this amount of money could be dealt with in a two-day trial, focusing only on the one truly contentious issue, is an indicator of the experience and reasonableness of counsel on both sides. I know lawyers who, if given the opportunity to represent RIM in such a matter, would have made none of the concessions that Mr. Christie made. Even faced with certain defeat, some lawyers may have still made the pitch for "just cause". (Sometimes, the logic is as much to disparage the plaintiff as for any real possibility of success; even if the threshold isn't met, you get to rip into the other side to try to get the judge's sympathy. It's pretty dirty, really drags out the proceedings with peripheral and relatively unimportant factual issues, increases everybody's legal costs significantly, and I would doubt its effectiveness.) Likewise, such lawyers would have made the alternative argument that the notice period would not have encompassed the vesting date, and that alternatively Mr. Taylor would not have exercised the stock option. Because really, who wants that much money, right? Making arguments with no chance of success don't serve anyone's interest, and reduce counsel's credibility even when making arguments that may have merit. So by making reasonable concessions, Mr. Christie did a real service to his client. (Of course, I'm assuming that Mr. Christie was correct in assessing those arguments as having a low chance of success, but I would not be in any position to second-guess that judgment.)

RIM has its own in-house legal department, but I would expect most of them to practice Intellectual Property law. Still, you have to wonder what events transpired that left a company like RIM ending up in a position like this, having to pay a 7-digit gross-up, with a Court saying that it "now concedes that the dismissal was without just cause".


This Blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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