Legal experts contradict Horne on AHS executive bonuses

Alberta Health Minister Fred Horne should not have fired the Alberta Health Services (AHS) board over its refusal to renege on contractual executive bonuses, employment lawyers say.

Fired AHS board had no legal choice but to award bonuses

Minister challenged on AHS bonus issue


8 years ago
Legal experts say that the AHS board had no choice but to pay out executive bonuses 2:09

Alberta Health Minister Fred Horne should not have fired the Alberta Health Services (AHS) board over its refusal to renege on contractual executive bonuses, employment lawyers say.

Alberta Health Minister Fred Horne fired the Alberta Health Services board earlier this month. (CBC)

"I appreciate (the Alberta government) is in a deficit situation and they have to look at the numbers," Edmonton employment lawyer Dan Scott said, "but I don’t think that at the end of the day, making this decision to undercut the board, and in fact fire the board, over its efforts to honour the contracts is going to be the right move when the dust settles."

Toronto employment lawyer Allison Taylor said Horne placed the board in an untenable legal situation when he indirectly demanded that it refuse to honour contracts, containing bonus provisions based on performance, for 99 AHS executives.

"Certainly he put the board in an awkward situation because they simply can’t play ball in the way the government wants them to," said Taylor, who has 26 years’ experience and has authored two books on employment law for lawyers and human resources professionals.

Employment lawyer Allison Taylor says denying the bonuses would have been 'costly' and likely 'pointless.' (CBC)

Taylor said the board clearly understood that if it reneged, it could be sued, and would lose.

"(It) would be very costly and probably a pointless exercise," Taylor said, adding that "when you figure that the merits of the case are entirely on the side of the employees in my view, as opposed to the board side, if it were to have followed the instructions it was given, it is much more costly to breach than to pay."

CBC News obtained the employment contract of Alberta Health Services chief executive officer Dr. Chris Eagle — which is posted online — and showed it to Taylor and Scott. By coincidence, Scott has vetted the contracts of several AHS executives. He said they are standardized contracts not just within AHS but within the health care industry and others.

Breaching contracts expensive

Scott agreed with Taylor’s assessment that the AHS board is bound by the "iron-clad" contracts. To breach them, he estimated,would cost taxpayers at least 10 times as much as the $3.2 million cost of the bonuses if the executives took legal action.

"I think they have to weigh the cost-benefit of that," Scott said. "If they are not honouring the contracts, to save themselves $3.2 million, but by doing that they end up triggering millions and millions of severance payments under these same contracts, I’m not sure that is eventually going to be such a good idea."

Scott said if, for example, AHS decides to renege on Eagle’s contract, and he decided to sue, it would have to pay him a year’s salary — $580,000 — plus his potential maximum bonus — $145,000 — and other associated negotiated costs. 

The total? Potentially more than $800,000, Scott said. Eagle was not affected by the board’s firing and remains on the job.

An AHS spokesman said Horne was unavailable for an interview and instead issued a statement on the minister’s behalf that reiterated the comments hemade after he fired the board on June 12.

Horne had publicly asked the board to "reconsider" the bonuses. It did, at a hastily called meeting and decided it could not renege on the contracts with its executives. Horne fired the board after calls from Wildrose Leader Danielle Smith, who said Horne had no choice but to fire them to reassert the government’s control over the healthcare system.

Horne said he fired the board over what he said was its insistence on awarding the "pay-at-risk" bonuses, which are based on reaching certain performance targets. He said the bonuses were unacceptable at a time when doctors, teachers, and other public servants are taking a pay freeze.

Those comments,however,directly contradicted comments he made in March when he said it would be improper for him to interfere with the terms of employee contracts. 

In Horne’s emailed statement to CBC News, he said he remained concerned that some AHS executives had "reportedly" volunteered to forgo their pay-at-risk this year but were blocked. CBC News asked AHS spokesman John Muir to provide any evidence to support this claim. Muir did not respond.

Horne creates "legal quagmire"

After firing the board, Horne signalled there may be no way out of paying the bonuses, saying the situation was a "legal quagmire."

Lawyer Dan Scott said if there is a legal quagmire, it is Horne who created it for AHS, the government, and potentially taxpayers.

"The employees have a contract," he said. "They are entitled to rely on that contract. They signed it in good faith and so did Alberta Health Services. So to the extent that there is a legal quagmire I expect it is going to make its way up to Mr. Horne."

New Democrat Health critic David Eggen said Horne had to have known the executive contracts were "iron-clad" and that the AHS board was therefore bound to honour them.

"It demonstrates gross incompetence," Eggen said. "It demonstrates a singular lack of understanding of the implications of this." Eggen said firing the board was cynical politics.

"The optics were bad because (the Conservatives) set up an untenable situation where they are making cuts to frontline services," Eggen said. "They are laying off nurses. They are freezing wages. And in the background are these performance bonuses that are coming due.

"If they wanted to clean house, they could have done so in a systematic and productive way, instead of running a bulldozer through it.

"Now it is coming back to bite them, and bite taxpayers too."