Why you are entitled to a bonus even if fired
THE MAIN LEGAL POINT LAID DOWN BY THE SCC IN THE CASE IS THAT EVEN IF CONTRACTUAL CLAUSES RESTRICT THE BENEFITS EMPLOYEES ARE TO RECEIVE AFTER THEY ARE FIRED, SUCH AS BONUSES, STOCK OPTIONS, PENSION VESTING ETC. THOSE CLAUSES WILL SELDOM BE ENFORCEABLE. — HOWARD LEVITT
OPERATIVE ISSUE IS WHETHER THE EMPLOYEE LIKELY WOULD HAVE EARNED IT.
since the Supreme Court of Canada handed down its decision in Matthews V. Ocean Nutrition Canada Ltd., one of our junior lawyers has been spending much of his time rewriting our employer clients’ employment contracts. It’s an unexpected benefit of being the successful lawyer in the case.
To recap, the main legal point laid down by the SCC in the case is that even if contractual clauses restrict the benefits employees are to receive after they are fired, such as bonuses, stock options, pension vesting etc. those clauses will seldom be enforceable.
Between Matthews and a plethora of other cases dismantling termination provisions in employment contracts, few contracts drafted prior to mid-2020 will be enforced, and employee entitlements, of any nature, will almost always survive dismissal, almost regardless of the wording of most contracts designed to prevent it.
Here are some of the principles from these cases, which employers and employees must pay heed to.
Bonuses and other forms of remuneration need no longer be “integral” to an employee’s compensation for the employee to recover it as part of their damages flowing from their dismissal. The operative issue is whether the employee likely would have earned it if they had continued working during the number of months of severance awarded by the court. As the Supreme Court of Canada made clear in the case of Matthews, the very purpose of notice is to put the employee in the position they would have been in if they had continued to work during that period of notice.
Employees will be entitled to the bonus earned during the notice period, or on a pro rata basis if it’s partially earned, unless there is very clear exclusionary language to the contrary, according to the Ontario Court of Appeal’s decision in the case of Andros v Colliers.
This includes bonuses for the period that the employee actually worked prior to dismissal as well. Too often, severance packages ignore bonuses that were fully or partially earned at the time of dismissal, and plaintiff counsel often neglect to ask for it or advise their clients.
Although theoretically, remuneration which would have been earned during the period of notice following a wrongful dismissal, i.e. bonuses, carry, commissions, pension vesting etc. can be disallowed with a sufficiently strong contract doing so, such contracts will be strictly interpreted against an employer seeking to remove such rights.
Contracts attempting to do so must be both clear and unambiguous.
Requiring an employee to be actively employed or to be a fulltime employee at the time that the bonus accrues, for example, is insufficient.
Similarly, stipulating in an employment contract that a terminated employee “with or without cause” will be deprived of the bonus or other entitlement is insufficient to actually deprive the employee of that entitlement as it does not explicitly reference an “unlawful” termination. The Matthews case made clear that the employment relationship is not treated as terminated until the period of reasonable notice expires, so even a reference to an unlawful termination without notice is insufficient.
In addition, contracting that the remuneration provision in question shall not form part of the severance calculation is insufficient, since the term “severance” is distinct from damages in lieu of wrongful dismissal and the court awards such damages, not “severance,” however vernacularly the term “severance” is often used.
Another issue raised by Matthews is whether the clause depriving the employee of a particular entitlement was adequately brought to that employee’s attention when it was introduced. The Matthews case suggests that the clause will not be binding if it was not.
In the dawe vs equitable Life case, the Ontario Court of Appeal found that even when the bonus plan was posted on the intranet where it could be accessed by all employees, the employee was handed the new bonus plan and that same employee was involved in terminating others where the entitlement to bonus was addressed, it was still insufficient to clearly bring the new exclusionary provisions to the employee’s attention.
If a provision was drafted to remove the remuneration effective as soon as the person was fired without even continuing for the period of notice required by employment standards legislation (in provinces requiring continuing notice for a delineated period of time), the entire clause would be considered invalid as it would violate the employment Standards Act. There is a caveat for COVID-19 in much of this. The courts, in determining damages for wrongful dismissal, will attempt to extrapolate what the employee would have earned over the period of notice that the court awards.
The various formulas applied, such as averaging the last three years of commissions or bonuses or simply applying the last year of earnings, are merely techniques to replicate that result. If the evidence at trial is that the bonus and commissions etc. would have been dramatically reduced over the period of notice, for example because COVID-19 had crippled the business, than the employee will only receive what the court finds they likely would have received over that period regardless of what they had earned in the past.
Got a question about employment law during COVID-19? Write to Howard at levitt@levittllp.com.
Howard Levitt is senior partner of LSCS Law, employment and labour lawyers. He practices employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada.