What Does Your Bonus Plan Say?
October 3, 2016
On August 9, 2016 the Ontario Court of Appeal released two sets of reasons in wrongful dismissal cases dealing with employees’ entitlement to receive bonus payments over a reasonable notice period.
In both Lin and Paquette the employees were terminated without cause and had a right to pay in lieu of reasonable notice of their termination of employment at common law. In both cases, the employer denied payment of any bonuses that the employees would otherwise have been eligible to receive within the reasonable notice period, relying on the requirement in the plans that employees’ be “actively” employed on the date of bonus payout to be eligible. In Lin the bonus plan stated: “In the case where a Participant resigns or the Participant’s employment is terminated by [Teachers’] prior to the payout of a bonus (normally the first pay period in April), no bonus shall be earned by or payable to the Participant.”
The Court of Appeal affirmed the holding in previous cases that the bare requirement that the employee be actively employed at the date of bonus payout is not sufficient to displace an employee’s common law entitlement to claim damages, rather than the bonus itself. The Court of Appeal set out a clear path to determine an employee’s rights. The first step is to assess whether the bonus formed an integral component of the employee’s compensation. The next question is whether the wording in the bonus plan unambiguously alters or removes the employee’s right to claim damages for the loss of bonus payments over the notice period. The Court held that a bonus plan may set out limitations on or conditions for the payments, but very clear language is required to take away or limit a dismissed employee’s common law rights.
It remains to be seen what amounts to “clear language” to displace an employee’s right to damages for lost bonus payments.
Paquette v. TeraGo Networks Inc., 2016 ONCA 618 and Lin v. Ontario Teachers’ Pension Plan, 2016 ONCA 619 (CanLII)