Canadian Employment Law Today

December 1, 2021

Focuses on human resources law from a business perspective, featuring news and cases from the courts, in-depth articles on legal trends and insights from top employment lawyers across Canada.

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Answer: Annual bonuses provide a mechanism for employers to reward employees for their productivity, commitment, and loyalty. The employer's right to cancel or decline to provide an annual bonus depends on the terms of the bonus plan and whether eligibility for a bonus forms part of the employee's terms and condi - tions of employment. A bonus plan contained in an employment contract or company policy may provide an em- ployee with a legally enforceable entitlement to a bonus, based on a specific formula or other form of measurable criteria. In other situations, bonuses may be discre- tionary. Even in those circumstances, how- ever, an employee may be entitled to a bonus on the ground that it has become an integral part of the employee's compensation pack- age. In Nardulli v. C-W Agencies Inc., the B.C. Court of Appeal reviewed the four factors that are relevant to determining whether a bonus constitutes an integral part of an employee's compensation: • Has a bonus been received each year? • Have bonuses been required to remain competitive with other employers? • Have bonuses been awarded historically? • Did the bonus constitute a significant com - ponent of the employee's overall compensa- tion? Annual bonuses that have been consistently awarded over a long period of time, and which comprise a significant portion of the employee's compensation, are more likely to be deemed in- tegral than those that are nominal and awarded infrequently. Where an employee is entitled to an annual bonus, there are two legal risks that can arise if the bonus is unilaterally cancelled. First, the employee may claim that non-pay - ment of the bonus constitutes a constructive dismissal. At common law, a constructive dis- missal occurs where an employer unilaterally makes substantial changes to the essential terms of an employee's contract of employment and the employee has not agreed to the changes: Farber v. Royal Trust Co. An employee who is constructively dismissed has all the rights of an employee who is expressly terminated without cause, meaning that the employee is entitled to seek compensation through a wrongful dis - missal claim. In Pavlis v. HSBC Bank Canada, however, the B.C. Supreme Court, after reviewing a number of decisions from various provinces, indicated that employers that are experiencing financial dif - ficulty have some leeway in this area, and a pay cut representing up to "9-10 per cent of…aver- age salary without more does not amount to a fundamental breach," while a reduction in pay of "14-17 per cent can amount to a fundamental breach, but only in conjunction with some other significant unilateral change to the employment contract." While these thresholds are not a con - crete rule, this case is a useful guide in evaluating the impact of cancelling an annual bonus. The second legal risk is that even if the cancel- lation of a bonus does not represent a sufficient- ly fundamental change to constitute a construc- tive dismissal, the employee may nevertheless be able to pursue recovery of a bonus to which they are contractually entitled, through an em- ployment standards complaint or court action. Even where an employee is not legally en- titled to an annual bonus, an employer must be mindful of the negative impact that cancella- tion of an expected bonus can have on morale. At a minimum, an employer should be careful to explain why bonuses are not being awarded or it will risk losing valuable employees. For more information, see: • Nardulli v. C-W Agencies Inc., 2014 BCCA 31 (B.C. C.A.). • Farber v. Royal Trust Co., [1997] S.C.R. 846 (S.C.C.). • Pavlis v. HSBC Bank Canada, 2009 BCSC 498 (B.C. S.C.). Colin Gibson is a partner with Harris and Com- pany in Vancouver. He can be reached at (604) 891-2212 or cgibson@harrisco.com. Answer: Employers have an obligation to pro- vide their employees with a safe work environ- ment free from bullying and harassment in all locations where employees perform their work. In most Canadian jurisdictions, workplace bullying and harassment is addressed in workers' compensation or occupational health and safety legislation. On Jan. 1, 2021, the federal govern - ment also introduced significant obligations for federally regulated employers, who now must jointly develop and provide employees with a workplace harassment and violence prevention policy. While an employer may not be able to con - trol the actions of a client or other third party, the employer does have control over how it re- sponds to bullying and harassment of its work- ers, regardless of where that conduct occurred. At a minimum, to prevent and deal with workplace bullying and harassment, employers should do the following: • Develop a comprehensive policy statement with respect to workplace bullying and ha- rassment that meets the requirements of the governing legislation. • Develop and implement procedures for workers to report incidents of workplace bullying and harassment, and for how the employer will investigate. • Provide training to employees on bullying and harassment and the employer's policy and procedures. • Thoroughly investigate claims of bullying and harassment and provide a conclusive outcome to all parties involved. Where an employee's claim that they were harassed by a client at the client's location is ul - timately substantiated, the employer must take steps to protect their employee and prevent fu- ture occurrences. These steps will depend on the individual circumstances of each case, and could include the following initiatives: • Rearranging the employee's work so they are no longer exposed to contact with the client. • Asking the client to take steps to protect the employee, such as disciplining their harassing employee. • Refusing to conduct further business with the client until the client agrees to stop or prevent the harassing behaviour. • In extreme cases, severing the business rela - tionship with the client. Failure to take appropriate steps may expose an employer to liability. Employers also have an obligation under human rights laws to provide a workplace that is free from discrimination and harassment on grounds such as sex, race, age, physical disability, and mental disability. This legislation has been applied broadly, such that if an employee expe - riences discrimination or harassment on a pro- tected ground in the course of their employment, including from a person who is not the employer or a fellow employee, the employer is required to take steps to prevent its continuation. Canadian HR Reporter, 2021 2 | | Deceember 1, 2021 Deceember 1, 2021 COMPANY'S on page 7 » Off-site harassment Question: What should an employer do if an employee who works mostly on the road is harassed by a client at the client's location? Ask an Expert Have a question for our experts? Email jeffrey.smith@keymedia.com HARRIS AND COMPANY, VANCOUVER with Colin Gibson Cancellation of annual bonus QUESTION: What are the risks of cancelling an annual bonus for one year?

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