The Ontario Court of Appeal's decision in the case of
Paquette v. TeraGo Networks Inc. should have all employers
running to double-check and possibly amend their bonus plans. A
further case released on the same day by the same panel of judges
further confirmed the law set out in the Paquette
Trevor Paquette had been employed by TeraGo Networks for
approximately 14 years at the time of termination. He brought a
motion for summary judgment and his common law notice period was
found to be 17 months. The motions judge also determined that he
was entitled to damages in lieu of his remuneration for the entire
notice period, although he denied entitlement to damages in lieu of
bonus entitlement over the notice period. The matter proceeded to
appeal solely on the basis of whether or not Paquette was entitled
to damages in lieu of bonus during his 17 month notice period.
Paquette's bonus plan stated that he had to be
"actively employed" at the time the bonus was paid in
order to receive same. The Court of Appeal reviewed a number of
similar bonus and stock option plan cases, and confirmed that the
following is the state of the law in Ontario:
Subject to contractual terms, a
terminated employee is entitled to compensation for all losses
arising from the employer's failure to give proper notice, and
the damages award should place the employee in the same financial
position he or she would have been in had such notice been given.
In Paquette's case, since he would have earned a bonus had he
been given working notice, the use of the words "active
employment" could not be used as an end-run around his claim
for the bonus over the pay in lieu of notice period.
The test to be followed is two-fold:
(i) the first step is to determine an employee's common law
rights and whether a bonus forms an integral part of the
employee's compensation; and (ii) the second step is to
determine whether there is something in the bonus plan that would
specifically remove that common law entitlement.
An "active employment"
requirement does not preclude the employee from receiving damages
representing compensation for the bonuses which the employee would
have received if employment had continued through the reasonable
The key for employers then, is to ensure that the language of
any bonus plan is sufficiently clear that the common law
entitlement to damages in lieu of bonus is expressly removed. As
every bonus plan is different and as the drafting of this sort of
exclusionary language is obviously complex, legal advice should
always be sought by employers when it comes to limitations set out
in bonus plans.
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