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<< back to all ArticlesEmployee Entitlement to Shareholder Profit Sharing Programs after Termination
There are two primary ways an employer can terminate an employee: “with cause” or “without cause.”
When an employee is terminated “with cause,” the employer is not required to provide severance or reasonable notice. However, if the termination is “without cause,” the employer must offer either notice or pay in lieu of notice, in accordance with both minimum employment standards legislation and common law. In sum, when an employee is let go without cause, the employer owes the employee reasonable notice, also known as severance.
The common law determines the reasonable notice period (or “severance”) based on the Bardal factors. These factors include: the character of the employment, the length of the employee’s service, the employee’s age, and the availability of similar employment, considering the employee’s experience, training, and qualifications. The calculation of reasonable notice is individualized, tailored to the specific circumstances of both the employee and employer.
Once the reasonable notice period is established, the employee is entitled to receive their salary and benefits for the duration of this period, subject to mitigation. However, often disputes arise between employers and employees, as to whether an employee is entitled to receive payments under shareholder profit sharing programs.
In Kirke v. Spartan Controls Ltd., 2025 ABCA 40, an employee with 25 years of service was terminated. During his employment, he had become a shareholder through the employer’s profit-sharing program, holding approximately 73,600 shares. The dispute arose over whether a terminated employee was entitled to shareholder payments, which appeared to function as dividend payments, during the notice period. The employee argued that, had it not been for his wrongful dismissal, he had the right to continue working, retain ownership of his shares, and receive periodic dividends. The employer, on the other hand, asserted that under the Unanimous Shareholders Agreement, they had the right to buy back the employee’s shares at any time with 90 days’ notice. Consequently, the employer issued a notice to buy back the shares, thereby denying the employee any dividend payments during the notice period.
The Court of Appeal ruled in favor of the employer, stating that when an employer has a clear contractual right to buy back shares with notice, the employee is not entitled to receive additional dividends on those shares, regardless of the reasonable notice period:
[21] The difficulty with the analogy Mr. Kirke seeks to draw is that his right to retain shares and receive SHPS payments was not dependant solely on active employment. It was also and always subject to Spartech’s right to buy back shares pursuant to the terms of the USA. The summary trial judge made no palpable and overriding error in concluding that, among other rights, the USA gave Spartech an unrestricted right to buy back Mr. Kirke’s shares at any time upon 90 days’ notice. There can be no debate that is what section 2.6 of the USA says. The plain language of the USA enabling the 90-day buy back of shares distinguishes Mr. Kirke’s case from the cases upon which he relies. In each of them, the terminated employee received the bonus or benefit at issue as part of their wrongful dismissal damages because they had an otherwise unrestricted right to receive the bonus or retain the benefit had they worked during the reasonable notice period. In Taggart, for instance, Sharpe JA concluded the employee was entitled to common law contract damages for the loss of pension benefits (i.e., payment in lieu of notice) because the employee “had the contractual right to work and to be paid his salary and receive benefits throughout the entire … notice period”: at para 16. In contrast to the USA in Mr. Kirke’s case, there was no language in the Taggart pension terms that unambiguously permitted the employer to cease paying the pension benefit during the employee’s period of employment, including the reasonable notice period. See also, Matthews at para 65..
As a result, the employee’s claim for damages for dividend payments during the notice period was dismissed. Accordingly, when issuing shares under an employer profit-sharing program, employers should be careful to include precise language that protects them from potential liability for dividend payments. As highlighted by the Court of Appeal, a well-defined buy-back provision in a Unanimous Shareholders Agreement can be used to an employer’s favour.
This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.
