A recent decision of the Ontario Court of Appeal is instructive on important issues in assessing damages in a wrongful dismissal case dealing with the bonus and benefits for the notice period.
The case is significant for two reasons. The first is that it set aside the first decision of the lower court on these damage questions and defined again the law on these claims. Even more importantly, the successful appeal was argued by our two lawyers, Jeff Hopkins and Kirsten Pennington. Congrats to both.
The Facts of the Case
The plaintiff in the case had been employed for roughly 11.5 years. On termination he held the position of General Manager of one of the operating divisions and was 51 years of age. The plaintiff was terminated in December of 2016, which was close to coincidental for the bonus cycle of 12 months, this being based on the calendar year.
The performance bonus was shown to have been previously set in the range of 3.78% to 6.026% of pre-tax profit. There were no words in the bonus document which suggested that the employer could limit the award based on performance issues, nor had it expressed any performance concerns prior to termination. It was awarded by the motions judge for the year of termination at 4.634%.
A significant issue on appeal was the plaintiff’s entitlement to bonus compensation for the notice period which had been set at 17 months, and also for the year of termination.
The case was first presented on a summary judgment motion which allowed the claim at 17 months, awarded the bonus for the termination year, yet denied the bonus sum and benefits loss for the 17 months of notice.
The Appellate Decision
The Court of Appeal set out the test to determine whether the bonus sum should be awarded for the notice period as follows:
- Has the bonus payment become an integral part of the compensation of the employee?
- Are there any words in the bonus document which may limit the entitlement to bonus sums for the notice period or otherwise?
The answers to both questions were in the plaintiff’s favour.
The Court of Appeal also allowed the appeal for the value of lost benefits for the notice period.
This does not mean that the employer cannot use proper language to deny or qualify such a claim. In fact, the decision endorses the employer’s right to do so. The language could, for example, state that the objective of the bonus is to encourage the retention of the employee for future years and hence deny bonus entitlement, or a portion of it, for the notice period. The document could also insist that certain performance measurements must be met to qualify for the payment, even in the course of active employment.
The decision points to the need for the employer to create a proper legal foundation to deny or modify the bonus claim for the notice period.
A bonus plan which defines the need for “active employment” will likely not deny the bonus claim for the severance period.
A clause which purports to reserve “discretion” to the employer will likely not suffice to eliminate a bonus claim as the employer will still be required to show good faith in the exercise of this discretion.
Quirks on the Bonus Question
Oddly enough, a claim can also be made for vacation pay on the bonus sum awarded. Ontario’s Employment Standards Act defines of wages on which vacation pay is calculated to include a bonus payment. It does exempt a bonus payment which is dependent on the discretion of the employer and that is not related to hours, production or efficiency, a test which would be difficult for most employers to meet. The bonus document should, ideally, state that the sum awarded includes the vacation pay accrual.
Curiously Ontario law at one time contained an unusual provision in the Employers and Employees Act, which denied the right of an employee to seek an audit of the employer’s calculation of the employee’s entitlement when the payment of bonus is defined as a percentage of profits. This law was deleted as recently as November of 2017.
Advice is Critical
The issue of the bonus entitlement in the notice period or otherwise is complicated, to put it mildly. Preventive advice may be of critical assistance to the employer in creating an effective contract which sets out the determination of this issue well in advance.
From the employee’s perspective, he or she may also benefit from understanding and fairly negotiating an effective contract.
Absent these steps in place in advance of the controversy arising from termination, each party will be left to debate the entitlement of the employee’s claim based on the documents in place, often to the employee’s advantage.
If you have questions about this issue of wage rates paid to part-time staff, whichever side of the fence you be on, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.
 On a summary judgment application for an immediate decision without a trial.
 Greenberg v Meffert An application for leave to appeal from this judgment was dismissed by the Supreme Court of Canada (Lamer, Le Dain and La Forest JJ.) December 10, 1985. S.C.C. Bulletin, 1985, p. 1434. S.C.C. File No. 19563. This information was also published as a NOTE at 56 O.R. (2d) 320.
Return to Blog →