Canadian HR Reporter

CANADIAN HR REPORTER February 20, 2017 EMPLOYMENT LAW 5 At Sherrard Kuzz LLP we collaborate with our clients to anticipate and avoid human resources problems. We know proactive steps today will prevent Murphy's Law tomorrow. From human rights to health and safety, and everything in between… If you're an employer, we're the only call you need to make. 24 Hour 416.420.0738 www.sherrardkuzz.com | 416.603.0700 | 24 Hour 416.420.0738 250 Yonge St #3300, Toronto, ON M5B 2L7 | @sherrardkuzz Your workplace experts. Employment Law Labour Law At Sherrard Kuzz LLP we collaborate If you're an employer, Your workplace experts. Employment Law Labour Law C A N A D I A N L AW Y E R M A G A Z I N E Y E Y E Y R 2013 RANKED Do you have to pay a bonus following the termination of employment? is is the time of year when many companies determine bonus payments for the preceding year and set targets or review language for the upcoming year. A bonus is commonly intended as a performance tool to reward and incentivize an employee who has or is expected to contribute to the success of the organization and/or achieve performance objectives. As a tool to reward and motivate, an employer may seek to tie bonus entitlement to active employment status. Unfortunately, in many cases, employers have been un- successful in precluding a bonus claim from a former employee. Whether the exposure is in re- spect of a pro-rata claim by an employee who has left before the end of the relevant bonus period, or a claim for lost bonus oppor- tunity during the period of appli- cable notice, many employers are surprised to discover there is seri- ous risk of a signifi cant payment to a former employee in respect of these bonus claims. A common mistake an em- ployer may make is failing to have a written bonus plan at all, or us- ing an outdated or "dusty" written plan or policy an employee may, or may not, have seen. Another common (and easily remedied) error is using language in the plan the employer believes will provide the necessary pro- tection, but the language has not been updated to refl ect the cur- rent state of the law. Although many written bonus plans state the employee immediately ceases to be eligible for a bonus in the event of termination of employ- ment, this isn't enough to pre- clude a court from awarding a for- mer employee damages in respect of a bonus claim. Many employers may think this risk isn't relevant to them as their bonus program is "discretionary" and so a former employee cannot make a claim in the event of termi- nation. An employer might even believe having the bonus plan set out in writing will compromise the plan's status as "discretionary." In both cases an employer may still be liable for a "discretionary" bonus, creating an unwelcome surprise in litigation. Can a bonus be "discretionary"? Absolutely. A bonus may be dis- cretionary, and if it is, an employ- ee who makes a claim for wrong- ful dismissal damages won't be awarded damages in respect of any bonus. What makes a bonus discre- tionary? e drafting of the plan and its implementation are key – much more is needed than simply stating the bonus is discretionary. A bonus is more likely to be considered discretionary if its payment and amount are not tied to something an employee has done or achieved, it is not automatically awarded year over year, and it does not comprise a meaningful component of an employee's annual compensation (an annual bonus comprising, say, 25 per cent of annual compensa- tion is less likely to be considered "discretionary"). It is also advisable to have writ- ten terms, even for a discretionary bonus plan — if only to reinforce the bonus is discretionary and an award in one year will not entitle an employee to an award in sub- sequent years. Problems arise when the em- ployer sets a performance target, which may include measurable criteria, to determine bonus eligi- bility and/or the amount of bonus. Similarly, a bonus will look less discretionary when an employee receives payment every year and views it as a meaningful part of his annual compensation. It should also be noted that in many jurisdictions across Canada a non-discretionary bonus is con- sidered wages under employment standards legislation. It is therefore important for an employer to understand how the standards may characterize the employer's bonus program, par- ticularly as it may impact other calculations — such as vacation pay and termination pay. the termination of employment? the termination of employment? the termination of employment? is is the time of year when many companies determine bonus payments for the preceding year and set targets or review language for the upcoming year. A bonus is commonly intended as a performance tool to reward the termination of employment? Shana French and Brian Wasyliw LEGAL VIEW BONUS > pg. 18 JOINT VENTURE BY: More court rulings on bonuses Paquette TeraGo Networks Inc., 2016 CarswellOnt 12633 (Ont. C.A.): The motion judge awarded the employee 17 months' notice and based damages on salary and benefi ts — not bonuses — because the bonus plan required an employee to be "actively employed" when the bonus was paid. The appeal court found the motion judge erred in focusing on the wording of the bonus plan. The dismissed employee had a common law right to damages based on his complete compensation package. The plan did not expressly limit entitlement to a bonus because had the employer provided proper notice, the employee would have received the bonus. Lin v. Ontario Teachers' Pension Plan Board, 2015 CarswellOnt 7878 (Ont. S.C.J.): The employee was awarded 15 months' notice for wrongful dismissal. He was entitled to two types of bonus typically paid out in April but was terminated in March 2011, before the bonus for 2010 was paid out. A year earlier, the employer introduced a requirement that to be eligible for bonus payments, a worker had to be actively employed at the time of payout. This was a material change to the employment agreement to which the employee refused to consent. The court awarded the bonus on three grounds: First, the worker was entitled to the bonus he would have earned during the notice period and any requirement to be "actively employed" at the time of payout was unfair. Second, the limitation language was not valid because it was a signifi cant change to which the employee had refused to consent. Third, the limiting language was an unenforceable "penalty clause." Because an employee is entitled to compensation for work done, enforcing the language would unjustly enrich an employer at the worker's expense. Percentage of firms that hand out bonuses 6 industries with biggest bonuses Typical bonus ranges for selected jobs Industry Bonus Energy and mining $10,000 Hardware and networking $9,000 Software and IT services $8,000 Consumer goods $7,500 Finance $7,100 Retail $6,000 Source: LinkedIn Job title Bonus range CFO $5,068-$57,945 CTO $2,564-$51,324 Vice-president, sales $5,027-$51,278 Vice-president, HR $7,861-$50,000 Vice-president, marketing $4,875-$34,591 HR manager $894-$11,933 Source: Payscale Canada 75 %

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