In the case of Singer v. Nordstrong Equipment Limited, 2017 ONSC 5906, the court held that while the Plaintiff was able to receive payment of his bonus up to the termination date, he was ineligible for bonus for the 17-month common law notice period. The Plaintiff appealed the denial of his claim for bonus for the 17-month notice period and the Defendant appealed the notice period arguing that the actual notice period should be 12-15 months. Stacey Ball to ensure a fair severance package.

As part of his compensation scheme, the Plaintiff was to receive a yearly bonus of 5% of the Defendant’s yearly pre-tax profits. The Defendant argued that the Plaintiff’s entitlement to bonus and the amount was a matter of “pure discretion”. There was no employment contract that was signed and while there was a policy document that gave information on how bonuses were to be paid, the document did not restrict the Plaintiff’s entitlements to bonus on termination.

At trial, the court agreed with the Plaintiff that bonus was not solely discretionary, as the Defendant had claimed. Despite this, the court did not award damages in lieu of bonus for the notice period given the “purpose” of which bonus was awarded was to “maximize efforts to generate profits.” Thus, the Plaintiff could not have had a reasonable expectation to be given bonus for 2017 or 2018.

The Ontario Court of Appeal (“ONCA”) upheld the 17-month award and gave the Plaintiff damages in lieu of his bonus during this period. The trial decision is interesting in that it was a departure from the principles set out of Paquette v. TeraGo Networks Inc., 2016 ONCA 618, where the ONCA set a two-part test to determine an employee’s eligibility for bonus during the notice period:

(a) Was the bonus an integral part of the employee’s compensation package, triggering a common law entitlement to damages in lieu of bonus

(b) If so, is there any language in the bonus plan that would restrict the employee’s common law entitlement to damages in lieu of a bonus over the notice period?

Given the trial court’s failure to use this test, the Plaintiff argued that an error of law had occurred when his claim for bonus during the notice period was dismissed. The ONCA agreed and stated that had the test in Paquette been applied properly, it would be determined that bonus was an integral part of the Plaintiff’s compensation scheme. Furthermore, having looked at the policy document (in line with part two of the test), there was no language that restricted bonus during the common law notice period. As such, as long as the two-part test was met, bonus would be awarded as part of wrongful dismissal damages for the common law notice period.

If you are an employer, it is important to ensure that your policies regarding bonus are clear an unambiguous and establish contractual limits to when and for how long bonus may be claimed. Even if bonus is a significant part of your employee’s compensation, you can avoid liability by clearly drafted policies. If you are an employee who has been denied bonus during the duration of your notice period or if you have a contract that limits your bonus entitlement to the date of termination, contact top Toronto employment lawyer Stacey Ball to ensure your receive a fair severance package that include total compensation. Call us at 416-921-7997 extension 227.