When does a bonus form part of compensation owed during a
terminated employee's notice period? According to a very recent
decision from the Court of Appeal for Ontario, notional bonus
entitlements will be part of compensation in lieu of reasonable
notice unless a contract unambiguously says otherwise.
In Paquette v. TeraGo Networks Inc. (2016 ONCA 618),
the Court of Appeal closely scrutinized a bonus provision which
required participants to be "actively employed on the date of
the bonus payout."
Trevor Paquette was awarded 17 months' reasonable notice at
trial, but was not granted damages for lost bonus payments. The
trial judge found that while Paquette was "notionally" an
employee during the reasonable notice period, he was not
"actively employed" at that time. The Court of Appeal
found for Paquette and held that the "active employment"
obligation did not exclude compensation for bonuses to which the
employee would have been entitled during the reasonable notice
In allowing the appeal, the Court of Appeal reiterated the basic
principle in awarding damages for wrongful dismissal, which is that
the terminated employee is entitled to compensation for all losses
arising from the employer's breach of contract in failing to
provide notice. As a result, damages will likely include an amount
for a bonus that would have been received during the reasonable
notice period where the bonus is an integral part of the
employee's compensation package.
Instead of focusing on an examination of whether or not the
terminated employee was "actively employed" at the time
of the bonus payment, the Court of Appeal found that the key issue
was what compensation Paquette would have been entitled to but for
the wrongful termination. Had the employee received reasonable
notice of 17 months, he would have been "actively
employed" when the company's bonuses were paid. This means
that in many ways the model for assessing damages is based on what
would have been paid or provided during a 17 month working notice
The Court of Appeal found that the motion judge erred by
examining the bonus provision on its own, instead of commencing the
analysis from the premise that the employee was entitled to his
full compensation package during the notice period. Rather than
examining whether or not the bonus plan was ambiguous, the question
is whether the bonus plan's wording unambiguously altered or
removed the employee's common law rights.
Takeaways for Employers
In Paquette, the Court of Appeal found that a term that
requires active employment when the bonus is paid, without more, is
not sufficient to deprive a terminated employee compensation for
lost bonus during the notice period.
Employers should be aware of Paquette and the
likelihood that reasonable notice compensation may include any
bonus payment to which a termination employee would have been
entitled during the notice period. To prevent this kind of added
post-termination obligation, employers will need to draft bonus
policies and clauses carefully and use firm, unambiguous language
when limiting an employee's common law entitlements. This
decision also reminds employers of the importance of regularly
reviewing bonus plan documents and employment agreements.
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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