A bonus earned should be paid
Active employment clauses denied
The promise of rich bonuses can be a potent recruiting tool. It’s also increasingly part of many Canadians’ remuneration, and for some most of it.
Bonuses can be based on the profitability of the company, the performance of the employee or a combination of those factors. They can also be discretionary with defined or undefined factors playing a role in determining whether and how large a bonus one is awarded. Some bonus plans are written, with elaborate formula to calculate the amount and detailed conditions of eligibility.
If an employee is terminated before the bonus has been declared or paid, employers often argue the employee is not entitled to the bonus based on the wording of the plan. However, that’s an argument the courts are making increasingly difficult.
In Lin vs. OTPPB, 2015, the court found in favour of David Tay der Lin, an investment professional with the Ontario Teachers’ Pension Plan Board.
Lin’s compensation consisted of a base salary and two separate bonus plans that represented 75 per cent of his overall compensation. The year before he was terminated, Teachers’ amended the bonus plans to provide that no bonus would be paid if an employee departed, whether for cause or not, before the payment date. In a 2015 decision, Ontario Superior Court Justice David Corbett found these amendments were ineffective in denying Lin his bonus payment for three reasons: past terminations Teachers had paid settlements to terminated employees which contained payment of bonuses. As result, the court found these bonus amounts were earned entitlements; The changes could not be imposed unilaterally and were made without obtaining the employees’ signature;
Even if the changes were legally valid, the terms denying Lin payment of bonuses, which he had earned, were in the nature of a “penalty” and not enforceable ( applying a legal principle that a court will refuse to enforce a punitive provision in a contract).
A similar result ( for different reasons) occurred in a 2015 Alberta case.
David Styles sued Alberta Investment Management Corp. (Styles vs. Alberta Investment Management Corporation, 2015) for wrongful dismissal. Styles was induced to move to Alberta from Toronto by an offer of performance based compensation.
A large part of Styles’s compensation consisted of his bonus based on a fouryear rolling cycle after which vesting would occur. The plan stated Styles had to be “actively employed” when the bonus was paid. He was terminated before the four years ended. Each year he was advised he had been approved f or a payment under the plan although the amounts were not paid.
When he was terminated without cause, his employer said no bonus payment would be made under the terms of the plan.
Madam Justice Debra Yungwirth of the Court of Queen’s Bench of Alberta found that Styles had earned his bonus and, using the contractual obligation of good faith, it was not fair that AIMCo could exercise its contractual discretion in an arbitrary way to deny Styles the bonus he earned, even though he was not actively employed when the bonus was to be paid.
In these cases the courts found ways to award an employee an earned bonus whether by finding that a term to deny payment is a penalty, or that it is bad faith to deny such payment.
These principles also often find their way into dismissal cases when an employee argues that their severance compensation should i nclude t he anticipated bonus.