Canada: Termination Pay Can Include Bonuses

Last Updated: April 16 2014
Article by Marie Dupuis

When deciding termination pay, many companies will focus on salary only and ignore other forms of compensation. But according to recent case law in Québec, an employee's pay during the notice of termination period must be comprised of every component of remuneration, including bonuses.

Introduction                                     

What elements of remuneration must be taken into account in the calculation of an employee's pay during the notice of termination period? According to Quebec doctrine and case law, all the components of remuneration should be included in the calculation of such compensation. Therefore, benefits such as insurance, car allowance and pension must be included. On the other hand, courts have been reluctant to include bonuses given the discretionary nature of such type of remuneration. However, two recent decisions by the Court of Appeal of Québec and the Superior Court reveal that employee incentive programs may, in certain circumstances, form an integral part of employee's remuneration and consequently, former employees may be granted bonuses as a component of a pay in lieu of a notice of termination.

FieldTurf Tarkett Inc. c. Gilman

On January 22nd, 2014, the Court of Appeal of Québec affirmed a judgment of the Superior Court of Québec that found that a bonus should be paid to employees on the grounds that it was part of their remuneration. In FieldTurf Tarkett Inc. c. Gilman1, the Court of Appeal considered that when bonuses are paid to employees on a regular basis, employees have a reasonable expectation to be paid such a bonus on a regular basis.

In this case, five former employees whose employment contracts were terminated by the company claimed "phantom share" bonuses. The employer's incentive program was intended for key employees of the company and bonuses were distributed at the sole discretion of the company CEO. As a matter of fact, the CEO had the discretion to decide which key employees would receive phantom share bonus payments and how much each would be paid.

Also dismissed in the context of restructuring, plaintiffs claimed none of them had received a final phantom share bonus payment prior to their departure. While the company accepted that plaintiffs were entitled to several months' notice of termination, it refused to provide them with the final bonus payment. The plaintiffs filed an action against the company claiming that they were entitled to receive the bonus payment.

The Superior Court of Québec granted the plaintiffs' claim.2 The Court dismissed the company's argument that the bonus payment to the plaintiffs was at the company's entire discretion. The Court held that former employees are entitled to receive all of the benefits that accrue during the notice period, including bonuses. Since evidence of the company's past practice revealed that the bonus payments had become an integral part of the plaintiffs' remuneration, the Court evaluated that plaintiffs had a reasonable expectation that they would receive a final bonus payment at the end of the year. In addition, the Court considered that the bonus payments were not entirely discretionary.

The Court of Appeal of Québec upheld the trial judge's decision. It also held that the provisions of the incentive program were ambiguous and had to be interpreted in light of the parties' intent. Change of direction in the company did not cease to make the plaintiffs key employees and thus eligible for the bonus payment. The employer's argument with respect to the eligibility conditions was rejected. In the end, the Court asserted that bonuses form an integral part of an employee's compensation and, as such, are generally taken into account as forming part of an employee's pay during the notice period.

Therefore, the Court of Appeal concluded that the final bonus payment became payable at the end of the year the plaintiffs employment contract were terminated. Neither the discretionary nature of the incentive program nor the eligibility policy prevented the plaintiffs from being able to recover the amounts claimed. The Court also endorsed the Superior Court's method of calculation which took into account past bonuses granted to the plaintiffs by their employer in recent years.

Melanson c. Groupe Cantrex Nationwide

On January 29th, 2014, the Superior Court of Québec considered if, when an employment contract is terminated, whether the employee's bonus should be included as part of his pay during the notice of termination period. In Melanson c. Groupe Cantrex Nationwide3, the plaintiff requested damages from his former employer for breach of an employment contract as a result of his dismissal.

Citing restructuring issues within the company, the employer had notified the plaintiff in writing that his employment was terminated immediately and offered him an indemnity representing eight (8) weeks' notice in accordance with the Act Respecting Labour Standards4. In his claim, the plaintiff, a vice-president for twelve years, considered eighteen (18) months to be reasonable notice. He also claimed the bonus payable under the employee incentive program. With regards to the incentive program, the employer considered the plaintiff was not eligible to the payment of a bonus since he was no longer employed by the company at the time of its payment.

According to the Superior Court, the plaintiff was entitled to a reasonable notice of termination of fifteen (15) months. The Court also found that the incentive program is a benefit related to the plaintiff's employment and thus, it was reasonable for him to expect a bonus on the year his employment contract was terminated. The Court considered that the incentive program had been established to replace wage increases for management employees and should thus be included as a component of the plaintiff's compensation.

As in FieldTurf Tarkett Inc. c. Gilman, the Court also rejected the employer's argument that the plaintiff was not eligible to a bonus because the incentive program provided that only employees at the time of payment of the bonus were eligible to receive a bonus. The Court ruled that the employer's policy cannot prevent an employee from claiming remuneration to which he is entitled. According to the Court, one must not conclude that an employee waives his rights to an incentive program by the mere fact that he is aware about the incentive program eligibility policy. As a result, the Court found the plaintiff entitled to claim the bonus payable under the incentive program for the period worked during the year his employment contract was terminated. In order to assess the amount of the bonus to which the plaintiff was entitled, the Court considered the average annual bonuses granted to the plaintiff in recent years.

Conclusion

Courts have been reluctant to award compensation based on bonuses, given that in most cases, these bonuses are the result of a discretionary decision by employers. Since bonus payments are entirely dependent on the employer's discretion, an employee will generally not be entitled to claim a bonus as part of his pay during the notice period.

However, recent decisions by the Court of Appeal of Québec and the Superior Court reveal that even when an employer exercises discretion in granting such a bonus, if such discretion has consistently been exercised in favor of the employee in the past, the bonus will be considered as an integral part of his remuneration.

In addition, both the Court of Appeal of Québec and the Superior Court have rejected arguments by employers in regards to eligibility policies for employed employees at time of bonus payments. Hence, if an employee had a reasonable expectation of a bonus during the year his contract of employment was terminated, courts will likely grant the plaintiff a bonus as part of his pay during the notice period. Applying the principle of proportionality to determine this amount, courts will most likely rely on the employment contract and employer's past practices in granting bonuses.

Footnotes

1 FieldTurf Tarkett Inc. c. Gilman, 2014 QCCA 147.

2 Gilman c. Fieldturf Tarkett Inc., 2012 QCCS 1429.

3 Melanson c. Groupe Cantrex Nationwide, 2014 QCCS 394.

4 An Act Respecting Labour Standards, CQLR c N-1.1.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions