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August 22, 2016

Clear language needed to disentitle employees from post-termination bonuses


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By Mika Imai

In 2015, the Ontario Superior Court of Justice heard two factually similar cases and came to opposite conclusions. Both cases dealt with employers who had denied bonuses to a terminated employee because he was no longer “actively employed” (a requirement under the bonus policies).

In Lin v Ontario Teachers’ Pension Plan, Justice Corbett concluded that, “where the bonus was promoted as an integral part of the employee’s cash compensation, it would be inappropriate and unfair . . . to be deprived of the bonus by reason of the unilateral action of the employer.”

Conversely, in Paquette v TeraGo Networks Inc., Justice Perell remarked: an individual is “. . . notionally an employee during the reasonable notice period; however, he will not be an ‘active employee’ and, therefore, he does not qualify for a bonus.”

Both decisions were appealed and, on August 9, 2016, Lin was upheld and Paquette overturned. In Paquette, the Court of Appeal outlined the correct approach to post-termination bonus cases:

“The first step is to consider the appellant’s common law rights. In circumstances where, as here, there was a finding that the bonus was an integral part of the terminated employee’s compensation, [the employee] would have been eligible to receive a bonus . . . had he continued to be employed during the . . . notice period.

The second step is to determine whether there is something in the bonus plan that would specifically remove the appellant’s common law entitlement. The question is not whether the contract or plan is ambiguous, but whether the wording of the plan unambiguously alters or removes the appellant’s common law rights.”

In considering the second step, the Court of Appeal found that the “active” service requirement was not clear enough to disentitle the employee to the post-termination bonus.

This new direction from the Court of Appeal should encourage employees to carefully review employment contracts for language removing their right to post-termination bonuses. Employers seeking to limit liability will need agreements with clear language.

Millard & Company has extensive experience attaining compensation for employees who have been wrongfully dismissed and drafting employment contracts for employers. Contact us at the number above to discuss your options.

 

 

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