Are Terminated Employees Entitled to their Bonus?
The Ontario Court of Appeal recently issued a decision as to whether a terminated employee was entitled to the bonus he would have earned while he was still employed.
The employee worked for the employer, a large commercial real estate company, from September 2001 to August 2004, when he left for other employment. However, he returned to work for the employer in February 2009 as a Senior Associate and was quickly promoted to the position of Managing Director. The terms of his employment included a base salary and yearly bonus.
The employee’s employment was terminated without cause on January 19, 2017. Upon termination the employee received what he was entitled to under the Employment Standards Act, 2000 (“ESA”), including a lump-sum payment in lieu of notice of termination representing eight weeks of salary, coverage for all benefits during that notice period, and a lump-sum severance payment representing about 12 weeks of salary.
However, despite having received a bonus for each year that he had been employed as a Managing Director, the employee did not receive any compensation for the bonus he would have earned for the period of time that he worked between the start of the new year and his termination (January 1 to 19, 2017) or for the period of time that was covered by notice under the ESA.
As a result, the employee brought an action for wrongful dismissal, claiming, among other things, that he was owed damages for the bonus he would have earned as an integral and non-discretionary part of his compensation package.
Lower Court Decision
The motion judge ruled that the employee was entitled to compensation for the bonus he would have earned while he was still employed from January 1 to 19, 2017. She also concluded that he was entitled to compensation for the bonus he would have earned during the eight-month reasonable notice period to which she found he was entitled at common law.
The employer appealed.
Court of Appeal Decision
The court set out the two-part test found in case law to determine whether damages in lieu of a bonus should be given. The first step is to determine the employee’s common law right. The second step is to ask whether there is something in the bonus plan that removes the employee’s common law entitlement.
The court stated:
“Where a bonus is a non-discretionary and integral part of the employee’s compensation package, damages for wrongful dismissal should include both the bonus actually earned before being terminated and the bonus that would have been earned during the notice period, unless the terms of the bonus plan alter or remove that right.”
While the court acknowledged that one could contract out of the requirement to pay a portion of a yearly bonus based upon what a terminated employee earned while he was working and would have earned during a notice period, that contract would have to be clear on its face.
In this case, the court found that there was nothing in the wording of the employment agreement to suggest that the common law right to damages for lost bonus potential in the wake of a termination without cause was contracted out of. Absent a contracting out, allowing for common law damages that include compensation in lieu of a pro rata share of a bonus in circumstances where the bonus is an integral part of the compensation package was the only sensible approach.
As a result, the court found that there was nothing in the employment agreement that disentitled the respondent to a pro rata share of his bonus for the period of time that he actually worked and the period of notice granted. The appeal was dismissed.
For Help With Employment Matters
The Kitchener-Waterloo employment lawyers at Petker Campbell Postnikoff have many years of experience advising non-unionized employees and employers on a variety of workplace issues, including harassment and termination. Our team will walk you through the details of your dispute, advise you on your rights, responsibilities and obligations, and help you understand your options. If your dispute cannot be settled through negotiation, we can represent you through mediation and the court process.
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