Watch Out! – Employer’s Practice of Not Paying Bonuses on Termination Not Enough to Oust Obligation to Pay Up

Written by on August 7, 2018 in Blog, Focus on Canadian Cases

 

The Ontario Court of Appeal in Singer v. Nordstrong Equipment Ltd., recently confirmed that an employer may not deny payment of a bonus during the notice period unless the company’s policy of not paying the bonus is clearly expressed in a document governing the bonus payment scheme.

This decision overturned a motion judge’s denial of an employee’s claim for his bonus and the loss of his benefit package following his termination.

Andre Singer was President and General Manager of Nordstrong Equipment Limited’s East Division. He had worked for Nordstrong for eleven years when, in December 2016, he was terminated without cause.

At the time of his termination, Singer was earning $180,000.00 per year in salary, plus comprehensive health and dental benefits. He also participated in Nordstrong’s annual bonus award plan. The bonus payments received under this plan formed an integral part of Singer’s total compensation.

Following his termination, Singer brought an action for damages for wrongful dismissal.

On Singer’s motion for summary judgment, Justice Diamond set the reasonable notice period at seventeen months. He went on to find that Singer was entitled to a bonus for 2016 (being the year Singer was employed), but not for 2017 or 2018 (being during the notice period).

The motion judge reached this conclusion by relying on Nordstrong’s practice of awarding bonuses at the end of the calendar year based on performance. Justice Diamond noted that Singer was aware that Nordstrong did not include bonuses in determining notice entitlement, and accordingly, held that Singer would not have had a reasonable expectation of earning a bonus during the 2017 and 2018 fiscal years while he searched for alternative comparable employment.

Justice Diamond also denied Singer’s claim for the loss of his benefit package since he had not proven that he had suffered an actual loss.

Singer appealed this decision to the Ontario Court of Appeal, who had a different view as to Singer’s entitlements.

The Court of Appeal overturned the lower Court’s decision, holding that Singer was entitled to receive his bonus during the entire notice period, as well as compensation for his loss of benefits.

Writing for the Court, Justice Feldman reaffirmed the two-part test set out by the Court in Paquette v. TeraGo Networks Inc. for determining whether an employee is entitled to compensation for the loss of bonuses during the notice period. The Paquette test asks:

  1. Was the bonus an integral part of the employee’s compensation package, triggering a common law entitlement to damages in lieu of bonus?
  2. If so, is there any language in the bonus plan that would restrict the employee’s common law entitlement to damages in lieu of a bonus over the notice period?

Justice Feldman found that the bonus formed an integral part of Singer’s compensation package, triggering the common law entitlement to compensation for a loss of bonus as part of his damages for wrongful dismissal. She further held that the parties did not contractually restrict Singer’s bonus entitlement on termination of employment. It is insufficient that Nordstrong had a unwritten policy not to pay any bonus after the termination of an employee’s employment. It is also irrelevant that Singer was aware of this unwritten policy. No contracting-out could occur without the employer explicitly setting out that policy in a document that governed the bonus payment scheme. Because this policy was not expressed in any enforceable document, Singer remained entitled to his bonus during the entire notice period.

The Court also overturned the motion judge’s denial of Singer’s claim for loss of benefits. As Justice Feldman explained, on a wrongful dismissal action, an employee may claim loss of benefits flowing from the dismissal even if he or she does not prove that they suffered a loss of the benefits. It was sufficient that Singer demonstrated the replacement cost of his benefits over the notice period. He was not required to provide evidence that he had actually incurred the cost of replacing those benefits.

The Court allowed Singer’s appeal, awarding him damages for bonus and benefit compensation in the amount of $166,955.00 and $9,458.00 respectively over the reasonable notice period of seventeen months.

Lessons for Employers

Employers who include discretionary bonuses as part of their employees’ compensation packages should be aware of this decision. If an employer wishes to contract out of a bonus during a notice period, employers must ensure that the intent to do so is clearly and unambiguously expressed in the document governing the bonus, as well as in each employee’s employment agreement. Further, the contracting-out provision must not purport to deny the employee’s entitlement to a bonus during the minimum notice period required under the Employment Standards Act, 2000, as this may invalidate the contracting-out provision.

Lessons for Employees

Employees who have been terminated without cause should not assume that their notice entitlements are to be calculated on their base salary only. Notice entitlements may include payment of bonus up to termination as well as over the notice period – even if the employer has an unwritten practice of not providing bonuses to terminated employees.

Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us to see how.

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