Court of Appeal: A Dispute Over Bonus Pay Not Necessarily a Constructive Dismissal

On March 21, 2017, the Court of Appeal for Ontario released its decision in Chapman v. GPM Investment Management, 2017 ONCA 227.  The decision includes an interesting statement on the law of constructive dismissal.  In a nutshell, the court stated that a "disagreement regarding the calculation of a bonus is not necessarily constructive dismissal”.

The appellant, Brent Chapman, was the CEO and President of GPM Investment Management for 9 years.  A memorandum with his employer provided that his bonus would be 10% of pretax profit of certain operations and assets of GPM.  In calculating his 2011 bonus, GPM excluded the profits from its sale of the "Ellerslie Lands", which were lands purchased by GPM years earlier and sold for a capital gain.

As a result of GPM's exclusion of the Ellerslie Lands from the bonus calculation, Chapman stood to lose $329,687 in 2011 bonus pay.  He subsequently left GPM and claimed that he was constructively dismissed by reason of GPM's exclusion of the Ellerslie Lands from his bonus pay calculation.

The trial judge disagreed, and the Court of Appeal upheld the lower court's decision.  In finding that Chapman was not constructively dismissed, Justice Miller of the Court of Appeal for Ontario acknowledged that the exclusion of the Ellerslie Lands was indeed a breach of the employment contract between GPM and Chapman.  However, in refusing to find a constructive dismissal, he found that the scope of the bonus was open to interpretation and therefore GPM's exclusion of the Ellerslie Lands could not be viewed as a "unilateral act".  Justice Miller found that the exclusion simply "amounted to a dispute over the interpretation of the application of one transaction to Mr. Chapman's bonus scheme and nothing more."  The Ellerslie Lands were open to interpretation since Chapman's bonus ordinarily came from operating income of GPM and not from capital gain profits.

This case is interesting because it makes clear that not every established breach of an employment agreement will amount to a constructive dismissal.  In order to prove a constructive dismissal, one must show that an employer, by a single unilateral act, breached an essential term of the employment contract to the extent that the breach substantially alters an essential term of the contract.  Alternatively, one can prove a constructive dismissal by showing that an employer, as a result of a series of actions, has indicated that it no longer intends to be bound by the employment contract.

In this case, Chapman lost a bonus of almost $330,000.  One would think that GPM's action of excluding the Ellerslie Lands was a breach of an essential term of the employment contract, given the amount at stake.  Therefore, one of the important takeaways from this decision is that, no matter how large the impact on an employee, the employer's action must be seen as "unilateral", and the employer will not have acted unilaterally where there was some scope for different interpretations of the employment contract.