Share Buy Back Clause Spares Employer from 20 Months’ Profit-Sharing Damages

Share Buy Back Clause Spares Employer from 20 Months’ Profit-Sharing Damages

In Kirke v Spartan Controls Ltd.,[1] the Alberta Court of Appeal held that even if shareholder profit sharing (“SHPS”) payments are an integral part of an employee’s total compensation package, a well-drafted share buy back clause can limit the employee’s entitlement to SHPS payments during the reasonable notice period.

Background

After almost 25 years as a manager with Spartan Controls (“Spartan”), Mr. Kirke’s employment was terminated without just cause. At summary trial, the lower court awarded Mr. Kirke damages in lieu of 20 months’ reasonable notice of termination under the common law.  These damages were calculated based on his base pay, benefits and quarterly bonus payments.

However, Mr. Kirke was also a participant in Spartan’s optional SHPS program, and he claimed that he was owed SHPS payments during the entire 20-month notice period.  Based on Mr. Kirke’s circumstances, the lower court found that the SHPS payments were an integral part of Mr. Kirke’s compensation.  Nevertheless, the lower court found that Mr. Kirke’s entitlement to SHPS payments was limited to just 90 days from the date of his termination letter. Both parties appealed.

Spartan’s SHPS Program

To participate in Spartan’s SHPS program, employees were required to sign a unanimous shareholder agreement (“USA”). The USA contained provisions allowing Spartan’s parent company to buy back the shares at any time (regardless of whether the shareholder was actively employed) with 90 days’ notice:

2.6 The Company may at any time, by Ninety (90) days notice in writing to the Shareholder, require that the Shareholder sell all or a part of the Shares then owned by such Shareholder to the Company. Upon the elapse of the notice period to the Shareholder [sic] shall have the obligation to sell and the Company shall have the obligation to buy such Shares set out in the notice.

Mr. Kirke’s termination letter provided him with 90 days’ notice of his obligation to sell back his shares to Spartan’s parent company.

The USA Unambiguously Limited Mr. Kirke’s Common Law Rights

On appeal, Mr. Kirke invoked the Supreme Court of Canada’s decision in Matthews v Ocean Nutrition Canada Ltd. (“Matthews”),[2] and asserted that section 2.6 of the USA failed to limit his damages for the loss of SHPS payments during the reasonable notice period.

In Matthews, the Supreme Court held that, in calculating a dismissed employee’s reasonable notice entitlement, the appropriate starting point is to consider what compensation the employee would have received had the employer not breached the implied term to provide reasonable notice.  Therefore, courts must ask two questions when determining the appropriate quantum of damages for breach of the implied term to provide reasonable notice:

1. Would the employee have been entitled to the compensation during the reasonable notice period?
2. If so, do the terms of the employment contract or program unambiguously take away or limit that common law right?

However, Alberta’s Court of Appeal held that section 2.6 of the USA did clearly and unambiguously limit Mr. Kirke’s rights.  Specifically, section 2.6 provided Spartan’s parent company with an unrestricted right to buy back Mr. Kirke’s shares at any time on 90 days’ notice.  In this regard, Mr. Kirke’s right to retain shares and receive SHPS payments was not dependant on his active employment.

The Court of Appeal agreed with the lower court’s conclusion that Mr. Kirke’s termination letter provided him with the 90 days’ notice contemplated in section 2.6.   Therefore, Mr. Kirke’s damages for the loss of SHPS payments was limited to a period of 90 days from the date of receipt of the termination letter.

Notably, the Court of Appeal also rejected Mr. Kirke’s argument that Spartan acted in bad faith by dismissing him and buying back his shares in order to deprive him of SHPS payments.  According to the Court of Appeal:

“Matthews did not introduce a generalized concept of good faith as a conflicting paradigm against the contractual rights Spartan Controls always had and Mr. Kirke knew about. Mr. Kirke cannot ask the Court to invoke Spartan Controls’ reliance on unambiguous terms of the USA as a lack of good faith to write out of existence the employer’s contractual rights.”

Key Takeaways

Kirke v Spartan Controls Ltd. serves as an important reminder to employers that well drafted forfeiture provisions, including buy back clauses, are imperative to limiting an employer’s exposure to damages on termination of employment.  Employers must take care to ensure that contractual language providing employees with bonuses and other compensation clearly and unambiguously limits employees’ right to receive or retain the compensation during the reasonable notice period.

[1] 2025 ABCA 40.
[2] 2020 SCC 26.

By Danielle Perris, Kritika Sharma and Paul Boshyk

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025