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Can an employee who is fired for cause sue for outstanding
bonuses? What if those bonuses relate to the period of the
employee's wrongdoing? This was the issue in Mady Development Corp. v. Rossetto
(PDF), when a terminated executive sought to claim his bonuses
for a period when he was found to be misappropriating company
resources.
Facts
Mr. Rossetto was employed as an executive with a group of
corporations ("Mady"). During the fall of 2007, Mr.
Rossetto diverted labour, materials and funds from Mady to renovate
his house. Mr. Rossetto was fired on December 12, 2008, when Mady
discovered his wrongdoing. Mady then sued Mr. Rossetto to recover
the misappropriated corporate funds and resources. Mr. Rossetto
counterclaimed for his bonuses for 2007 and 2008. Pursuant to his
employment contract, Mr. Rossetto was entitled to an annual bonus
equal to 30 percent of Mady's profits after overhead. The
parties ultimately submitted their dispute to arbitration.
In arbitration, Mady framed its claim as a breach of fiduciary
duty. Mady took the position that because Mr. Rossetto was fired
for cause, he was not entitled to his bonuses. The arbitrator
awarded Mady $315,452 in respect to the misappropriated resources
and $231,000 to compensate for the delay that Mr. Rossetto had
caused to Mady's projects as a result of his wrongdoing.
However, the arbitrator also concluded that even a dishonest
dismissed employee is entitled to be paid for the work he has done.
As a result, Mr. Rossetto was awarded $364,661 in satisfaction of
his unpaid bonuses for 2007 and 2008.
Mady appealed the decision to the Ontario Superior Court. On
appeal, the judge determined that errant fiduciaries forfeit
entitlement to compensation in the form of bonuses and overturned
the arbitrator's decision to grant Mr. Rossetto his
bonuses.
Mr. Rossetto then appealed the judge's decision to the
Ontario Court of Appeal. The Court of Appeal reversed the lower
court decision and supported the arbitrator's position. In the
end, the Court of Appeal awarded Mr. Rossetto his bonuses.
A Discretionary and Fact-Dependent Remedy
The Court of Appeal determined that there were no authorities to
support the principle that fiduciaries that breach their duties
automatically lose their right to bonuses. Courts will address
cases such as these on a case-by-case basis and will use their
discretion to find the appropriate solution. In this case, the
court found the facts relating to the nature and history of Mr.
Rossetto's bonuses to be particularly important.
The court acknowledged that there are different kinds of
bonuses. Bonuses can be fixed, variable or entirely discretionary.
In Mr. Rossetto's case, the bonuses were significant and
non-discretionary terms of his employment contract. They were an
integral part of his compensation. The court went so far as to
state that he was just as entitled to the bonus component of his
compensation as he was to his regular salary.
Take Away for Employers
Employers should always be conscious of the implications of
including significant, non-discretionary bonuses in employment
contracts as these bonuses may be due even if the employee is fired
for cause. If employers do not want bonuses to be payable in such
circumstances, they should take care to set that out in any bonus
policies and the employment contract.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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