Bonus Payments During the Notice Period: Yay or Nay? The Court of Appeal Provides Clarity

bonus entitlement

Earlier this year, we took an in depth look at the decision of the Ontario Superior Court of Justice in Singer v Nordstrong Equipment Limited. In a decision that surprised many, Justice Diamond held that while it was clear that Mr. Singer was entitled to receive payment of his bonus up to the date of termination, he was not entitled to his bonus during the 17 month notice period. The other surprising aspect of the Singer decision was the denial of damages in lieu of employment-related benefits that Mr. Singer would have otherwise received during the notice period, due to the fact that Mr. Singer could not provide proof of any loss in this regard.

Mr. Singer appealed the dismissal of his claims for his bonus and benefits during the 17 month period of reasonable notice, and the Company appealed the length of the notice award (stating that the award should have been between 12 and 15 months), as well as the award of a bonus for 2016.

RECAP OF THE FACTS

Mr. Singer was the President and General Manager of the Company at the time his employment was dismissed. He commenced an action seeking damages for wrongful dismissal, including payment of his bonus. As part of his compensation package, Mr. Singer received an annual bonus which he claimed was fixed and calculated at 5% of the Company’s annual pre-tax profit. The Company argued that Mr. Singer’s entitlement to, and the amount of, the bonus were matters of “pure discretion”. There was no signed employment agreement between the parties, and although a Corporate Culture document provided some information on the payment of bonuses, it did not specifically restrict an employee’s entitlements on dismissal.

DECISION AT TRIAL

Justice Diamond agreed with Mr. Singer that the bonus was not purely discretionary as the Company claimed, and that he was entitled to receive payout of his bonus for the 2016 year (Mr. Singer was dismissed in December, 2016). However, despite this, the court declined to award any damages in lieu of his bonus for the 17 month notice period.

This decision appears to have been based primarily on the court’s review of the “purpose” of the bonus, which Justice Diamond concluded was “…to maximize efforts to generate profits”. It was therefore not within Mr. Singer’s “reasonable expectation to be able to earn a bonus for the 2017 and 2018 fiscal years while he searched for alternative comparable employment”.

DECISION OF THE COURT OF APPEAL

The Court of Appeal upheld the 17 month notice period, and awarded Mr. Singer damages in lieu of his bonus and benefits during this period.

The trial court decision in Singer was surprising for its seeming complete departure from the principles enshrined in Paquette v TeraGo Networks Inc., where the Ontario Court of Appeal established a two part test to determine if an employee was entitled to receive payout of a bonus during the reasonable notice period:

  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 restrict the employee’s common law entitlement to damages in lieu of a bonus over the notice period?

As one might expect based on the above, Mr. Singer argued that by failing to apply the two-part test established in Paquette when dismissing his claim for his bonus, Justice Diamond had erred in law. The Court of Appeal agreed, noting:

had the motion judge applied the two-part test, based on his analysis regarding the bonus owed for the 2016 year, he would have found that the bonus was an integral part of the appellant’s compensation package. Nor is there anything in the Canerector Inc. Corporate Culture document that would limit that right over the notice period.

Regarding the purpose of the bonus, the Court of Appeal acknowledged that payout of any bonus would include an aspect of incentive as well as a reward for performance, neither of which would apply to an employee who is no longer working for the employer. Nevertheless, the Court was clear that so long as the two elements of the test in Paquette are satisfied, damages for wrongful dismissal will include compensation for loss of a bonus.

The Court of Appeal also confirmed that the requirement to prove a loss in order to receive compensation in lieu of benefits was not reflective of the law, and that Mr. Singer was entitled to same.

CONCLUSION

The decision of the Court of Appeal confirms that the two-part test established in Paquette remains the standard when determining whether an employee is entitled to receive a bonus during the notice period.

For employers, this case reinforces the importance of having your policies with respect to bonus payments clearly and unambiguously set out in the bonus program document or in an employee’s contract of employment. Even where a bonus forms a significant part of an employee’s compensation, employers can avoid liability for bonus payments during the reasonable notice period with well drafted, and implemented, policies.

Similarly, employees should be aware that the courts have set a high standard in terms of the language required in order for employers to opt out of an employee’s entitlement to receive their bonus during the notice period.

Brittany Taylor

Since being called to the Ontario Bar in 2013, my practice has been dedicated to assisting both employers and employees to manage their workplaces. My approach to workplace issues is one that is pro-active and preventative. I take great satisfaction in assisting employees and employers to identify and deal with potential issues before they have an opportunity to evolve into serious headaches for both parties. I also take great pride in acting as a vigorous advocate on behalf of my clients, whether at the bargaining table or beyond to the trial stage.