For some workers, a bonus makes up a significant portion of their remuneration. For other workers, a bonus is something that may or may not be provided by their employee at specific times of the year – Christmas, for example.
Often, an employee who is dismissed without cause will ask whether their entitlement to wrongful dismissal damages will include a component for lost bonuses.
Compensation for wrongful dismissal can include an amount for a bonus which the employee would have been entitled to receive during the notice period.
In the absence of an employment agreement specifying to the contrary, the question is whether the bonus has become an essential component of the employee’s remuneration or whether it is essentially a gift – to be delivered at the employer’s sole discretion.
A recent decision of the Ontario Court of Appeal, Paquette v TeraGo Networks Inc., 2016 ONCA 618 dealt with this issue.
When Paquette was fired by TeraGo Networks Inc. the dismissed employee and his former employer could not agree on a severance package. Paquette brought a summary judgment motion to determine the period of reasonable notice and damages. The motions judge awarded notice at 17 months and based damages on salary and benefits that Paquette would have earned during the 17-month notice period. The motions judge did not award damages for bonuses, because the employer’s bonus plan required an employee to be “actively employed” at the time the bonus was paid.
Paquette appealed that decision on the issue of whether the motion’s judge made a mistake in not including compensation for lost bonuses.
The Ontario Court of Appeal allowed the appeal.
The motion judge erred in focusing on the wording of the employer’s bonus plan. The motions judge stated that there was no ambiguity in the terms of that plan, and that Paquette would not be “actively employed” during the reasonable notice period, and would therefore not qualify for a bonus.
The problem in that analysis is that Paquette was not claiming damages for the bonuses themselves, but was claiming for common law wrongful dismissal damages (which included bonus payment) he would have received had the employer provided proper notice. The motion judge should have started his analysis from the premise that the dismissed employee has a common law right to damages based upon his complete compensation package, and only then should he have turned to ascertain whether the compensation plan expressly limited that entitlement. In this case, the plan did not expressly limit Paquette’s entitlement to a bonus payment because, had the employer provided proper notice, Paquette would have received a bonus payment.
Lessons for Employees
When signing off on a severance package, it is always a good idea to have the offer reviewed by an employment lawyer who can ascertain whether the package appropriately captures all aspects of remuneration owed during the notice period.
Lessons for Employers
A term of a contract or policy requiring active employment when the bonus is paid, without more, is not sufficient to restrict an employee’s entitlement to compensation for bonus he or she would have received during the reasonable notice period.
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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