Canadian HR Reporter

CANADIAN HR REPORTER March 6, 2017 FEATURES 13 RECOGNITION Bonus payments for terminated workers Two Ontario cases highlight challenges for employers around payments due By Nafisah Chowdhury W hen it comes to bo- nus payments for ter- minated employees, things have become that much tougher for employers. On Aug. 9, 2016, the Ontario Court of Appeal released two de- cisions addressing employee en- titlement to damages in lieu of a bonus on termination. Generally speaking, the court confirmed the principle that if a bonus forms an integral part of an employee's total compensation package then, in a wrongful dismissal action, he is entitled to damages in lieu of the bonus unless there is enforceable bonus plan language that lim- its the employee's entitlements. Where such language exists, it will be strictly construed. e two decisions are summa- rized below: Paquette v. TeraGo Networks Inc. In Paquette, a 49-year-old em- ployee with 14 years of service was terminated without cause. At the time of his termination, Trevor Paquette held the position of di- rector of billing and operations support services. He sued for wrongful dismissal and brought a summary judgment motion to determine his entitlements. At the summary judgment mo- tion, he was awarded 17 months of pay in lieu of notice, calculated as his base salary and benefits. He sought compensation for his lost bonus over the 17-month notice period, but this relief was denied by the motion judge, who said: "I conclude that Mr. Paquette is not entitled to any bonus payments. Although the bonus program at TeraGo was an integral part of Mr. Paquette's employment, there is no ambiguity in the contract terms of the bonus program. Mr. Paquette may be notionally an employee during the reasonable notice pe- riod; however, he will not be an 'active employee' and, therefore, he does not qualify for a bonus." The employee appealed and he was successful. In arriving at its decision, the Court of Appeal relied on earlier bonus-related ju- risprudence which, among other things, stood for the principle that if a bonus is an integral part of an employee's total compensation, it would be inappropriate and unfair to the employee to be deprived of the bonus by reason of the unilat- eral action of the employer. With respect to language pur- porting to limit bonus entitle- ment to only "active employees," the Court of Appeal held that the motion judge had focused too narrowly on whether such lan- guage was ambiguous. e claim was not for the bonus, but rather for damages in lieu of a bonus. Accordingly, the Court of Ap- peal said the motion judge ought to have pursued a two-step analysis: 1. What are the employee's com- mon law entitlements, includ- ing whether, under the com- mon law, he would be entitled to a bonus during his reasonable notice period. 2. If so, whether there is specific wording in the bonus plan that unambiguously alters or re- moves the employee's common law entitlements. The court distinguished its 2004 case Kieran v. Ingram Micro, holding that (a) Kieran is a stock option case and stock options, while similar to bonuses, may be subject to a different test; and (b) in any event, the court in Kieran had applied the correct two-part test, determining that the limit- ing language contained in the im- pugned stock option plan unam- biguously altered the employee's common law rights. Lin v. Ontario Teachers' Pension Plan In 2010, the employer in Lin sought to enforce amendments made to the company's annual bonus plan (AIP) and long-term incentive plan (LTIP). By intro- ducing the new language, the em- ployer sought to bolster its right to deny an employee the AIP or LTIP pay upon termination. When the new language was introduced, the employer asked affected employees to sign off on the proposed changes to signify their agreement. Understand- ably, they were not keen. So, the employer backed away from its request, but took the position the new language was nevertheless applicable. Lin was an investment profes- sional who had worked at the Ontario Teachers' Pension Plan (OTPP) for almost eight years be- fore he was terminated for cause. At trial, the court held that his employer did not have cause to terminate him and awarded him a notice period of 15 months. His SIMPLE > pg. 14

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