In the recent case Andros v Colliers Macaulay Nicolls Inc., 2019 ONCA 679, the Ontario Court of Appeal discusses entitlement to damages in relation to bonuses. Specifically, it assessed the situation in which an employee works during, or has a notice period that goes into, the time period in which a bonus is earned, but where the bonus becomes payable after the conclusion of the notice period. The decision in this case positions bonuses as being earned pro rata throughout the bonus period. Stacey Reginald Ball is an experienced employment lawyer toronto for such cases.
An employee is terminated in May and has a notice period that ends in November. The bonus period is from January to December and is a non-discretionary and integral part of the terminated employee’s remuneration package. Applying Andros, the terminated employee would be entitled recover a pro-rated bonus for the period of January (start of the bonus period) to November (end of notice period).
“Earning” vs. “Receiving” a Bonus
The court found that entitlement to damages in relation to a bonus is not a question of “whether the bonus would have been ‘received’ during the notice period, but whether it was ‘earned’ or ‘would have been earned’ during that period” (Andros, para 57). This is an important distinction between “earning” a bonus, by doing the relevant work, and “receiving,” or being paid, the bonus at a later date. Drawing upon the example from above, even though the notice period does not encompass the date upon which the bonus becomes payable, it does encompass a period of time in which the employee would have done work that would have earned them the bonus, or a portion of it. The court’s distinction between “earning” and “receiving” a bonus reinforces that the entitlement is not for the bonus itself, but for damages providing compensation for what the employee would have earned had the employment contract not been breached via a wrongful dismissal – it is for the lost opportunity to earn the bonus.
In Terms of “Fairness”
The court addressed the “inherent unfairness that would arise in precluding those employees terminated without cause from seeking a pro rata share of their bonuses only by virtue of the fact that the notice period ended before the bonus payment date, particularly where the bonus payment date is entirely in the discretion of the employer” (para 56). This unfairness is compounded by the fact that the employer also has the discretion to determine when to terminate an employee and could calculate to do so in a manner that distinctly benefits the employer to the detriment of the employee. For example, the employer could determine the length of the proper notice period, and determine how far in advance they would need to terminate an employee in order for that employee’s notice period to expire the week, or even the day, before the bonus period concludes. The court determined that this possible situation is untenable.
It is important to note that the court agreed that it is possible for the employer to contract out the employee’s entitlement to pro-rated bonus damages if it is done clearly and unambiguously. However, there was no clarification on what the language to do so should look like.
Stacey Reginald Ball is an experienced Toronto employment lawyer with the Ball Professional Corporation. Our office handles various employment law matters, including wrongful dismissal. If you have questions regarding entitlement to pro-rated compensation for a bonus upon dismissal, please contact a lawyer for advice.