Matthews v Ocean Nutrition Canada Ltd, 2020 SCC 26 – Case Summary
Background and Facts
David Matthews was a long-time senior executive at Ocean Nutrition Canada Ltd. (“ONC”), a fish oil company, from 1997 until 2011. In 2007, ONC introduced a Long Term Incentive Plan (LTIP) for key employees, promising a share of the company’s value upon a “Realization Event” (such as the sale of the company). As the longest-serving executive in the plan, Matthews stood to receive a significant payout if ONC was sold. However, a new Chief Operating Officer hired in 2007 began marginalizing Matthews – stripping away his responsibilities and even misleading him about his future with the company. Matthews grew suspicious that ONC was preparing for a sale and felt he was being pushed out. In June 2011, he resigned and took a job elsewhere, later claiming that this resignation was a constructive dismissal (meaning he was effectively forced out by the employer’s conduct).
Crucially, the LTIP’s terms stated that an employee had to be actively employed on the date of a sale to collect any bonus. The plan explicitly said it would have “no force or effect” if Matthews ceased to be an employee “regardless of whether the Employee resigns or is terminated, with or without cause”. About 13 months after Matthews’s departure, ONC was sold for $540 million, triggering the LTIP payouts for those executives still with the company. Matthews, no longer employed at ONC, received nothing. He sued ONC for wrongful dismissal, arguing that he had been constructively dismissed without notice and was owed damages equal to the 15-month reasonable notice period he should have had. Those damages, he contended, should include the LTIP bonus he lost due to the sale occurring during that period.
The trial court agreed with Matthews: it found he was constructively dismissed in 2011 and entitled to 15 months’ notice. The trial judge awarded damages for the lost LTIP, reasoning that the plan’s language did not clearly remove Matthews’s right to that payout had he remained employed during the notice period. The Nova Scotia Court of Appeal upheld the finding of dismissal and the length of the notice period, but reversed the LTIP award – the majority believed the plan’s wording was clear enough to deny the bonus to a departed employee. Matthews then appealed to the Supreme Court of Canada (SCC).
Main Legal Issue
The core issue before the Supreme Court was whether a wrongfully dismissed employee (in this case, one who was constructively dismissed) is entitled to receive incentive compensation (like a bonus or LTIP payment) that becomes payable during the period of reasonable notice, even if the employee was not actively employed on the payout date. In other words, can an employer rely on contractual language requiring “active” employment at the time of bonus payout to withhold a bonus from someone who was forced out without proper notice? Or must the employer pay the bonus as part of the damages for wrongful dismissal? The Matthews case asked whether a dismissed employee was entitled to a payment under a long-term incentive plan despite no longer being employed at the company, given the plan’s language and the circumstances of his departure.
Supreme Court’s Ruling
Unanimous Decision: The Supreme Court of Canada unanimously ruled in favor of Mr. Matthews. It held that Matthews was entitled to damages for the loss of the LTIP payment (approximately $1.1 million) as part of his wrongful dismissal compensation. The Court reaffirmed that it is an implied term of every employment contract that employees will receive reasonable notice (or pay in lieu) upon termination, unless the contract clearly specifies otherwise. When an employer breaches this obligation, the employee is entitled to damages which are “fully loaded” – in other words, the damages must include all wages, benefits, and other compensation (like bonuses or incentives) the employee would have earned had they worked through the required notice period.
Importantly, the Supreme Court clarified a two-step approach for deciding whether a bonus or other incentive payment should be included in a wrongfully dismissed employee’s damages:
- Would the employee have been entitled to the bonus or benefit if they had continued working through the reasonable notice period? (Put differently, but for the termination, would the bonus have been paid during that time?)
- If yes, do the terms of the employment contract or bonus plan unambiguously take away or limit the employee’s right to that bonus during the notice period? (The language must be clear, explicit, and unambiguous in excluding the bonus in the event of termination without notice).
In Matthews’ case, the first question was answered yes. The company’s sale (the LTIP-triggering event) occurred about 13 months after his resignation – well within the 15-month notice period that the trial court had determined he was owed. Had Matthews not been wrongfully forced out and instead worked through that notice period, he would have been employed at the time of the sale and thus would have received the LTIP payout. This established a prima facie entitlement to the bonus as part of his damages.
On the second question, the Supreme Court found that the LTIP’s terms did not clearly and unambiguously take away Matthews’ right to the bonus in the context of a wrongful dismissal. The judgment highlighted several reasons for this conclusion:
- The LTIP’s requirement that the employee be a “full-time” or active employee on the date of the Realization Event (sale) was not enough to deprive Matthews of the bonus. If Matthews had been given proper notice and allowed to work until the sale, he would indeed have been actively employed on the payout date. Therefore, the “active employment” condition did not apply to a scenario where the employee would have met that condition but for the wrongful termination.
- The clause stating that the LTIP would not apply if the employee was terminated “with or without cause” also failed to cut off Matthews’ claim. The Court noted that Matthews was not simply terminated “without cause” in the ordinary sense – he was unlawfully terminated without notice (constructively dismissed). The LTIP did not explicitly address termination without notice. In fact, for the purpose of calculating wrongful dismissal damages, the law treats the employment as continuing through the reasonable notice period, meaning Matthews is regarded as an employee until the end of that period. Thus, even if the LTIP clause covered a “termination without cause,” it did not clearly cover an unlawful termination without notice, and it could not be used to deny him the bonus he would have gotten during the notice period.
- Another LTIP provision stipulated that the plan had no value other than on the date of a Realization Event and that it would not be considered part of an employee’s compensation for any resignation or severance calculation. The Supreme Court found this wording did not unambiguously prevent recovery of the bonus either. It reasoned that “severance” pay and damages for wrongful dismissal are distinct concepts in law. The LTIP clause might stop someone from claiming the bonus as part of a routine severance package, but it did not clearly speak to damages for breach of contract. Put simply, Matthews was not asking for the LTIP as a severance entitlement – he was asking for it as part of his damages due to not receiving notice. The Court emphasized that if Matthews had been given proper working notice of termination, he would have remained an employee on the sale date and received the LTIP payout normally. His damages were meant to reflect that lost opportunity, and nothing in the LTIP definitively took that right away.
Because none of the LTIP’s limiting language was sufficiently clear to oust Matthews’ common-law right, the Supreme Court held that he should be compensated for the bonus he missed out on. The Court therefore set aside the Court of Appeal’s judgment and restored the trial judge’s award of the LTIP amount as part of Matthews’ damages.
Implications for Employment Law
- Bonuses During the Notice Period: The Matthews decision confirms that when an employee is wrongfully dismissed (including being forced to resign through constructive dismissal), they are normally entitled to all forms of compensation they would have earned during the period of notice they should have been given. This principle ensures the employee is put in the same financial position as if proper working notice had occurred. That includes salary, benefits, and non-discretionary incentive compensation such as bonuses, commissions, stock options, or LTIP payouts that would have vested or become payable during the notice period. In essence, the employee should not lose out on expected income or benefits because the employer failed to give proper notice.
- High Bar for Contractual Limits: The Supreme Court set a high bar for employers seeking to contract out of paying such incentives. Employers cannot simply rely on generic wording or broad clauses to avoid bonus and incentive liabilities. The Court emphasized that any contract term or bonus plan clause aimed at limiting an employee’s right to compensation during the notice period must be clear and unambiguous. Clauses requiring an employee to be “active” on the payout date, or stating that benefits don’t accrue after termination “with or without cause,” will not be enough unless they explicitly address the scenario of a termination without notice (i.e. a wrongful dismissal). In other words, even seemingly strict language can fail if it doesn’t specifically cover the situation of an improper or early termination. This puts employers on notice that ambiguity will be resolved in favor of the employee’s common-law rights.
- Review of Incentive Plan Wording: In light of this ruling, employers across Canada should review and, if necessary, revise the language of their employment contracts, bonus plans, and LTIPs. Many standard termination or forfeiture clauses (for example, requiring active employment on the bonus date) might not meet the Supreme Court’s stringent clarity requirement. The SCC has now provided a clear framework to assess such clauses , and it signals that courts will enforce only those limitations that are drafted in express, unmistakable terms. Employers are advised to ensure any clause purporting to remove bonus entitlements upon termination is precisely worded (addressing rights during the common-law notice period) and is compliant with minimum employment standards. If such clauses are not tightened to be crystal clear, the default rule is that the employee will be entitled to damages for any bonuses or incentives lost due to improper dismissal.
- Employee Protections: For employees, Matthews v Ocean Nutrition is a significant victory that reinforces their rights upon termination. It confirms that an employer cannot evade paying earned or expected bonuses by dismissing an employee just before the payout date. The decision ensures that employees are made whole for compensation they would have received had reasonable notice been given. In practical terms, this discourages the tactic of firing or pushing out an employee to avoid a large bonus or payout. The case therefore strengthens job security in respect of bonuses and other incentives, by upholding the principle that wrongful dismissal damages should include all such lost entitlements.
- Overall Significance: Matthews v Ocean Nutrition is now a leading case in Canadian employment law regarding wrongful dismissal and bonus entitlements. The Supreme Court’s ruling provides a clear analytical framework for courts and litigants when assessing an employee’s rights to incentives after dismissal, and it largely reaffirms the approach that had been developing in lower courts. The decision highlights the strong common-law presumption that employees are entitled to the compensation they would have earned during the notice period, and it underscores that an employer cannot contract out of that entitlement without using explicit, unambiguous language. In sum, the case promotes fairness by ensuring that employers cannot easily use technicalities or opaque wording to deprive employees of significant benefits, thereby encouraging employers to act in good faith and draft contracts transparently when it comes to termination and incentives.
*Always seek legal advice. The above is for information purposes only.
Stephen Dugandzic received his Juris Doctor degree from the University of Alberta in 2013 and is Calgary-based. He previously practised with Bennett Jones LLP and Taylor Janis LLP before founding YYC Employment Law Group in 2018 and Evolution Legal in 2026.