Am I entitled to my bonus upon termination of employment?

Bonuses are a highly litigated subject in wrongful dismissal lawsuits. They can be a contentious issue in severance package negotiations as well. Where common law notice applies, the courts have established that damages for wrongful dismissal generally include all compensation and benefits that the employee would have earned during the notice period: Paquette v. TeraGo Networks Inc. (2016) ONCA 618, 352 O.A.C. 1. The test is: (1) was the bonus an integral part of the employee’s compensation package, triggering a common law entitlement to damages in lieu of bonus; and (2) if so, is there any language in the bonus plan that would oust the employee’s common law entitlement? The latter might be considered in light of the bonus clause in the employment contract, the bonus plan detailing how the bonus scheme works, and in considering the entire factual matrix: Sattva Capital Corp. v. Creston Moly Corp (2014) SCC 53.

In Paquette, the motion judge found that a term of the bonus plan that required that a person must be an “active employee” to receive the bonus was clear and unambiguous and thus disentitled the employee to any bonus entitlement upon being terminated without cause. However, the Court of Appeal for Ontario disagreed, and held that the motion judge had taken the wrong approach. Van Rensburg J.A. held at para. 21 that the issue was not whether the employee was entitled to access bonus entitlements in accordance with the terms of the plan upon termination, but whether the employee was entitled to damages comprised of the compensation and benefits that he or she would have been entitled to had he or she not been wrongfully dismissed. Had the employee been permitted to work through the reasonable notice period, the employee would have been “actively employed” and under the terms of the plan, entitled to bonus payments.

The Court of Appeal for Ontario noted in Dawe v. The Equitable Life Insurance Company of Canada (2019) ONCA 512, that in Kieran v. Ingram Micro Inc. (2004) 189 O.A.C. 58 (C.A.), the Court of Appeal for Ontario dismissed Mr. Kieran’s appeal, holding there were no ambiguities in the terms of the plans, and accordingly the language of the bonus plan unequivocally restricted Mr. Kieran’s common law rights upon termination.

In Andros v. Colliers Macaulay Nicolls Inc. (2019) ONCA 679, where there was an “actively employed” condition for receiving the bonus, and the employee was no longer in the notice period when the bonus for 2017 became “payable” in February 2018, after finding that there was nothing in the wording of the employment agreement that would oust the plaintiff’s common law entitlement to damages for lost bonus in the wake of termination, the court stated at para. 55:

“[55] 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 is the only sensible approach. Although the notice period in this case ended a few months before the bonus would have become due, one can well imagine a scenario in which the notice period could expire on the very eve of the bonus payment date. In those circumstances, the appellant’s position would lead to the untenable result that the dismissed employee would get no part of the bonus he or she had earned through a combination of his or her labour during that calendar year and over the course of the notice period that followed.

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[56]…Absent clear language in the contract, I do not accept the inherent unfairness that would arise in precluding those employees terminated without cause from seeking a pro rata share of their bonuses only by virtue of the fact that the notice period ended before the bonus payment date, particularly where the bonus payment date is entirely in the discretion of the employer.

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[57] Accordingly, the question is not whether the bonus would have been “received” during the notice period, but whether it was “earned” or “would have been earned” during that period. Damages may be sought as compensation for what an employee would have earned had his or her contract of employment not been breached…

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[64] I see nothing in the employment agreement in this case that disentitled the respondant to a pro rata share of his bonus for the period of time that he actually worked and the period of notice granted.”

The effect of Andros was to establish that what matters is not whether the bonus would have been “received” during the notice period, but whether it was earned or would have been “earned” during the notice period. Often bonus schemes might be for a given calendar year or fiscal year but paid out the following year. Applying Andros, the fact that the bonus is paid/received after the end of the reasonable notice period will not disenfranchise the individual from receiving their bonus where it was earned or would have been earned during that period.

It might be further argued that the law of contract is based on mutuality of obligations. Although this point was not litigated in Andros, there is another reason apart from unfairness and a distinction between the concepts of “earned” as opposed to “received” that might be advanced to support the employee obtaining their bonus. Stringing a workforce along through an integral incentive structure, which appreciably boosts productivity, only to insist on an “actively employed” technicality in the bonus clauses would result in an unjust enrichment for the employer: the employer has received the benefit of appreciably boosted productivity without adequately compensating the worker for the enhanced productivity. Enforcement of such a condition might be argued to offend the law of contract. While we await future litigation in the law of bonuses, Andros is a valuable case for litigants to consider in the meantime.

This blog has summarized some points about bonuses in the wrongful dismissal context but does not constitute legal advice and is not intended to be a summary of the law relating to bonuses or wrongful dismissal. Bonuses are a complex area of employment law and are often considered an uncertain and evolving area of law. Assumptions should not be made. If you have an employment-related question relating to your bonus or entitlements upon termination, it is best to contact a lawyer. Please do not hesitate to reach out for a consultation: colin@cuttresslaw.com