In Andros v Colliers Macauley Nicolls Inc, the Ontario Court of Appeal recently addressed the issue of whether a wrongfully dismissed employee is eligible to receive a payment in lieu of bonus throughout the common law notice period.
If the bonus is non-discretionary and an integral part of the employee's compensation package, damages for wrongful dismissal include bonuses earned in the year of termination, on a pro-rata basis, plus a payment in lieu of bonus throughout the common law notice period.
In this case, the respondent worked for the appellant, a large commercial real estate company. He left for other employment, however he returned and was promoted to the position of Managing Director, which included a base salary and a yearly bonus. In the last three years of his employment his base salary was $142,500 and his bonuses were $79,228.25, $127,933.80 and $49,757.51 respectively.
The Court found that the bonus was non-discretionary since he received the bonus every year and his employment agreement included both the base salary and bonus entitlement in the compensation section. Further, the Court concluded that the bonuses were integral to the employee's compensation, given the bonus amounts.
The appellant argued that the employee was not entitled to any further bonus payments, because there was a term in his employment contract which stated that only employees who were in "good standing" were entitled to bonus payments. The Court applied the test from Paquette v TeraGo Networks Inc. to this case.
1. First, determine the employee's common law right. Where the bonus is such an integral part of the respondent's compensation, there is a common law entitlement to the bonus that the employee earned or would have earned.
2. Second, whether there is something in the bonus plan that removes the employee's common law entitlement.
In arriving at the decision to award the employee a payment in lieu of bonus throughout the common law reasonable notice period, the court addressed the inherent unfairness in a scenario where the notice period expires the day before the date on which the bonus would be payable. As a result, the employee would get no part of the bonus that they earned throughout the course of their employment during that year and the notice period – which the Court concluded would be unfair to the employee.
However, an employer can contract out of the requirement to pay a portion of a yearly bonus for a partial year of service or throughout the common law notice period if this is set out clearly in the employment contract or bonus plan.
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