An employee who has been wrongfully dismissed and is entitled to reasonable notice at common law will be compensated based on the number of months of notice the court concludes they should have received. The amount of payment they receive in lieu of that reasonable notice will often be determined based on the employee’s compensation in previous years. Sometimes, the parties disagree over what forms of compensation should be considered. For instance, should the employee’s base salary alone be considered? Or should the value of their benefits, bonuses, and car allowances, among other factors, also be considered?

In Koski v Terago Networks Inc., the parties agreed that the employee, Koski, was dismissed without cause and without notice, thus entitling him to pay in lieu of notice. They disagreed, however, on what forms of compensation should be considered in determining the quantum of pay.

 

Factual Overview

Koski was an employee of the defendant Terago Networks Inc. He worked as a Customer Success Manager, a supervisory position, at the time he was fired. He was 38 years old and had been workingworked with the company for 13 years. The trial judge concluded, based on these factors, that he should have received 13 months’ notice.

Terago did not disagree with the number of months of notice awarded. However, they disagreed on what should be considered in determining his compensation. There was no dispute that his $80,000 base salary would be included. Instead, Terago disagreed that Koski’s incentive bonus should be included. Koski, predictably, wanted his bonus to be included because this would increase his total compensation and entitle him to more pay in lieu of notice.

Therefore, the issue is whether Koski is entitled to compensation for any incentive bonuses he could have earned during the notice period.

 

The Bonus Plan

Terago submits that its incentive bonus plan excludes Koski from participating in any bonus payments after November 20, 2019 (i.e. the date he was dismissed). The bonus plan in question provides the following provision under the heading “Eligibility”:

Actively employed by Terago on the date of the bonus payout in 2020. For greater certainty, any statutory severance period or reasonable notice period applicable to an employee who has been dismissed by the Company (whether with or without cause) that overlaps with a bonus payout date shall not be considered as satisfying the “actively employed” requirements of the Program. As such, employees who have been terminated … prior to the bonus payout date are not eligible for any bonus payments referenced herein.

On its face, the provision appears to disentitle Koski from receiving his bonus because he was not “actively employed” on the date of the bonus payout. But, is this consistent with the law?

 

Wrongful Dismissal Damages and Bonuses

According to the Ontario Court of Appeal, wrongful dismissal damages should “place the employee in the same financial position he or she would have been in” had proper reasonable notice been given. Courts will typically include all the compensation and benefits an employee would have earned during that notice period.

This approach was further adopted by the Supreme Court of Canada. According to the Court, whether an employee is entitled to bonus or other benefits during the notice periods depends on two questions:

  • Would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period; and
  • If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right.

 

Mr. Koski Entitled to Bonus

The first question in the above test is easily answered in the affirmative where the bonus is mandatory. However, in Koski’s case, the bonus is discretionary. Where bonuses are discretionary, one must consider whether:

  1. the bonus structure is integral part of his compensation, and;
  2. whether he would have received the bonus if he remained employed.

The onus is on the employee to affirmatively prove these questions.

Looking at Koski’s previous bonuses, the trial judge found that they were indeed integral to his compensation. Further, trial judge found that had he continued working through the notice period, he would have earned such bonus. Therefore, applying the test laid out by the Supreme Court of Canada, above, Koski would have been entitled to the bonus as part of his compensation during the notice period.

The second question in the Supreme Court’s test asks whether the bonus plan unambiguously removes the employee’s entitlement to the bonus. To accomplish this, the bonus plan must be absolutely clear and unambiguous. According to the Supreme Court, phrases such as “actively employed” and “with or without cause” are not sufficient. Rather, exclusion clauses, including those that exclude entitlement to bonuses, must clearly cover the exact circumstances which have arisen.

Ultimately, the trial judge found that Terago’s exclusion clause did not deprive Koski of his entitlement to his bonus incentive. The bonus plan provided that those who have been terminated are not eligible for the bonus – however, legally, one is not “terminated” until after the end of the notice period. Koski would have earned his bonus during the notice period, during which he would, at least legally, still be employed. Therefore the bonus policy is unclear – he must be terminated to not have the bonus, but he is not terminated, legally, until the end of his notice period, in which the bonus falls. Consequently, the policy does not unambiguously eliminate Koski’s common law right to his bonus payment. It must therefore be considered as part of his compensation for reasonable notice purposes.