Many employers are under the misapprehension that they do not
have flexibility with respect to how they compensate their
employees. The recent arbitration decision in RockTenn Company
of Canada Inc.1 provides some comfort to employers
looking to change their bonus plan criteria or targets.
RockTenn is a multinational company with 18 plants in Canada. At
its PrePrint location in Mississauga, Ontario, there are
approximately 100 employees, with 80 of them being unionized
employees represented by Unifor.
The Mississauga collective agreement between RockTenn and Unifor
contains a "Letter of Understanding re Annual Bonus"
("LOU") which provides as follows:
The Company shall continue the current Bonus Plan, paid out
annually as per the current practice.
Renew however, (sic) the criteria will now be under the
Rocktenn Guidelines and require Corporate RockTenn approval on an
annual basis. (Added in 2013 negotiations).
In the course of labour negotiations in 2013, the union
requested that the employer provide 2013 bonus criteria and
targets. The Plant Manager's response was that when he got job
approval to post the criteria and targets, he would do so. No other
discussion took place regarding bonus criteria or targets.
During the period from 2008 to 2012, the bonus ranged from 5.5%
to 8%. For 2013, however, the bonus was 1.5%. The union became
aware that the targets had changed from the 2012 targets when the
bonus was paid out in November 2013.
Ruling: Targets Can Change
The union's grievance was based on a flawed argument that
they essentially had a right to veto any proposed changes to bonus
criteria and targets. The company's successful argument was
that at no time had management negotiated an obligation to agree to
the criteria and targets.
The arbitrator held that the fact that targets had previously
remained consistent was not determinative. Instead, the actual
wording of the LOU needed careful review: the company had only
committed to bonuses being under RockTenn guidelines and subject to
RockTenn approval; there was nothing which required input from the
union. There was also no evidence of any consent obligation being
referred to or implied through discussions in bargaining.
Takeaway for Employers: Flexibility Matters
This decision provides helpful guidance to employers who provide
bonus plans to employees. In many cases, the "purely
discretionary plan" structure will not be appropriate,
especially if a large group is participating in the plan. The
result is that objective criteria and targets may be required. In
these cases, the fact that there may be a communication obligation
(which implies advising plan participants of relevant criteria)
does not equate to there being a consent requirement (where change
to targets cannot be made without mutual agreement).
Employers will want to closely review their plan documents in
light of this decision. In particular, plan provisions should be
structured to provide maximum flexibility both with respect to how
bonuses might be calculated, and the process for unilaterally
amending targets and payout terms.
1 (Ont. Arb.), dated February 4, 2015 (D.
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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