Rights for Terminated Investment Advisors
Investment advisors who are terminated without cause are entitled to notice as set out in their employment contract, or if there is no such contractual notice, to “reasonable” notice.
“Severance” is the pay individuals get instead of notice. It is the money an ex-employee
receives in place of continued paychecks over the notice period.
Calculating Severance for Investment Advisors
If there is no contractual notice formula in the employment contract, or the notice formula is defective, reasonable notice is calculated in months by estimating the amount of time it would take an individual to find comparable employment.
In calculating reasonable notice, Canadian courts universally employ these factors: (1) the
investment advisor’s character of employment; (2) the advisor’s length of service; (3) the age of the advisor; and (4) the availability of similar employment having regard to the experience, training, and qualifications of the advisor. Regarding the latter factor, investment advisors typically receive proportionally more severance than other industries because of the unique character of their employment insofar that their income is built up gradually over many years and a large part of their income is based on effort expended in the previous years. In other words, the longer the investment advisor worked and built up his or her book of business for one employer, the longer the notice period should be because it will take that much longer for the investment advisor to achieve a comparable book of business at a new employer.
If the employer does not provide the investment advisor with enough notice, then it is a
Estimating Annual Commission Income for Wrongfully Dismissed Investment Advisors
After calculating how much reasonable notice in terms of months an investment advisor is
owed, courts must calculate how much compensation the investment advisor should be paid per month over the notice period.
In all dismissals in all industries an employee must be paid the same income over the notice
period that they would have earned if they were not terminated.
When a person’s income is based on commissions, as is the case with investment advisors, it can be challenging to decide what that person’s full income would have been during the notice period.
To that end, an award for the lost opportunity of an investment advisor to earn commissions over the notice period should reflect the commissions that the employee would be estimated to have received during the notice period had they worked like normal over this period.
The courts have the discretion to estimate an investment advisor’s commission income for the purpose of money payable over the notice period in one of several ways, including:
- Using the last year’s income
- Using the last quarter’s income
- Using an average of the last three years’ income
Wrongful Dismissal, Investment Advisors and Their Bonus
Commissions are not usually the only income an investment advisor earns. Typically,
investment advisors also earn an annual bonus.
When an investment advisor’s annual bonus is non-discretionary and an integral part of their remuneration, they should be entitled to the bonus they would have earned in the future over the notice period unless a valid and enforceable termination clause in their contract says otherwise.
The law takes a two-step approach as to whether an investment advisor is entitled to their
future bonus following termination. First, the law considers whether, but for the termination, the employee would have been entitled to the bonus during the notice period. Second, the law determines whether there is something in the contract or bonus plan that would specifically remove the employee’s entitlement to the bonus in the notice period. For the latter part, the issue often becomes: is the language in the bonus plan that purports to remove a terminated employee’s right to their bonus enforceable? To this end, there are endless reasons why the language in a contract could be unenforceable but the most common legal issue in the courts presently is language requiring an employee to be “full-time” or “active” on the bonus payout date, which is language the Supreme Court of Canada very recently held is not strictly enforceable because this kind of language is ambiguous.
Not unlike calculating commission income, the law estimates an investment advisor’s income for the purpose of calculating the bonus over the notice period in one of several ways, including:
- Using the last year’s bons
- Projecting this year’s bonus based on current milestones, projections, and past and
present key events
- Using an average of the last three years’ bonus
Lost Opportunity to Sell a Book of Business
Naturally, many investment advisors who are terminated from their job are interested in
recovering monies representing the loss of their ability to sell their book of business that they normally would have been entitled to sell but for the termination.
However, the law is mixed on whether an employee can recover damages for the lost
opportunity to sell a book of business.
While some courts have held that investment advisors and brokers have a proprietary interest
in their books of business, other courts have held that it is the banks or brokerages who own
In any event, each claim for damages in a wrongful dismissal matter for the value of a lost book of business will be fact-specific and dependent on the custom of the employer and the nature of the clients. For example, in one case where an advisor was successful in recovering damages for the loss of his book of business, the court found that:
- the bank had a policy that set out when and how an investment advisor who was leaving
the bank could sell his or her client book to another investment advisor, subject to
- The advisor had already discussed selling his book to another advisor
- The bank had an implied obligation not unreasonably to refuse to consent to the sale of
an advisor’s book of business
- The advisor’s termination kept him from finalizing the sale of his book of business
In this case, the investment advisor might not have been successful in recovering damages for
his lost book of business had it not been for the fact he was actively selling his book of business when he was terminated.
Other Lost Monies Over the Notice Period for Investment Advisors
Investment advisors can also recover any other remuneration they might have received over
the notice period. There are countless kinds of pay and benefits that are recoverable over the notice period. Recall that employees who are dismissed, absent a contract that says otherwise, are entitled to all the remuneration over the notice period that they would have received had they not been terminated.
For example, in Veer v. Dover (1999), 1999 CanLII 3008 (ON CA), a court awarded damages for unexercised options under a stock option agreement. Similarly, in Taggart v. Canada Life (2005), 2005 CanLII 3220 (ON SC), damages were awarded for the loss of value that would have been added to the employee’s pension had he worked through the notice period. Likewise in Rodgers v. CEVA, 2014 ONSC 6583, the court found that the terminated employee should be awarded damages for the loss of not only his salary, benefits and RRSP contributions but also for his golf club membership that the employer had paid for in the past.
Lastly, investment advisors need to be aware that they may have to pay back a signing bonus or a forgivable loan if they are terminated even without cause within a few years after they were first hired if they have an agreement with their former employer speaking to this kind of early-termination repayment plan.
If you are an investment advisor and you were recently dismissed from your position, contact us for a free consultation. Monkhouse Law regularly represents investment advisors and we have set precedents in the area of wrongful dismissal and special compensation. We have successfully represented clients before all levels of court in Ontario, including the Superior Court, the Divisional Appeals Court, and the Court of Appeal and have also appeared before the Supreme Court of Canada.
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