Court rules in favour of labour-sponsored venture fund against fund manager

The Alberta Court of Appeal has ruled that an investment manager who was terminated without cause cannot interpret his incentive agreement to collect earned bonuses that only came due for payment after the date of his termination.

The appeal court decision in Styles v. Alberta Investment Management Corp. [AIMCo], which was handed down in January, may make it harder to argue that employees whose compensation is tied to bonuses can collect those bonuses if they are terminated before these incentives mature.

In a key finding, the appeal court concluded that David Styles, former vice president of relationship investments for AIMCo, could not ask the courts to review the fairness of the contract’s terms. Styles, who had moved from Toronto to Edmonton in 2010 to take the AIMCo job, had entered into a “Long Term Incentive Plan” with AIMCo. The plan provided for grants tied to performance, which vested in stages over a four-year period in addition to his annual salary of $175,000.

AIMCo awarded Styles the grants in 2011, 2012 and 2013, but did not pay any them because an explicit term of the plan was that, if Styles was not “actively employed” with AIMCo at the end of the four-year period, no part of the bonus would be paid.

According to the trial decision, there were no issues with Style’s performance. “Throughout his employment, [Styles] fulfilled his obligations as an employee of AIMCo and substantially exceeded every performance target put on him by the defendant,” the decision states. “The investments that were under his management contributed $330 million in value added in 2012, and a further $102 million in value added in just the first quarter of 2013.”

At the trial, where Styles was successful, he posed the question: can an employer require an employee to forfeit “bonus compensation earned by an employee” even though the employer has made it impossible to fulfill a condition of receiving the bonus — in this case, remaining in the position for four years.

According to a comment on the trial decision from Laurie Robson, partner with Borden Ladner Gervais LLP, the trial judge concluded that: “It was logical and reasonable to conclude that employees such as Mr. Styles would have the right to receive the grant at the [four-year] maturity date, even though the value [prior to the maturity date] was unknown.”

Styles was awarded damages of $444,205 at the trial. However, the appeal court disagreed. Much of the argument in the case, both at trial and on appeal, centred on the interpretation of a 2014 decision from the Supreme Court of Canada, Bhasin v. Hrynew, which states that contracting parties have a duty of good faith to one another and that they must act with honesty and not lie or mislead the other party.

In a comment on the appeal decision overturning the award to Styles, lawyers with Bennett Jones LLP noted: “[The appeal decision] thus gives important guidance on the scope of Bhasin. Where, as in Styles, an agreement is clear and unambiguous, courts will not be permitted to review the contents of the arrangement on the basis of the principle of good faith or the duty of honest contractual performance. In short, Bhasin does not permit review of the fairness of a contract’s terms.”

Photo copyright: belchonock/123RF