An often-contentious issue in wrongful dismissal litigation is whether an employee is entitled to a bonus that accrues or would have become payable during the notice period.
Recent cases have frequently focused on the contractual language required to preclude the entitlement to such a bonus, either through a contract of employment or a bonus plan.
A recent case of the Ontario Superior Court of Justice deals with a more fundamental question: in the absence of contractual language, when is an employee entitled to a bonus during the reasonable notice period?
In Fulmer v. Nord Strong Equipment Ltd, the Court was asked to determine whether the employee was entitled to all or part of a bonus for the 2016 and 2017 fiscal years, which aligned with the calendar year. The employee had been terminated on a without cause basis some 3 weeks prior to the end of 2016.
The Court determined that the employee’s reasonable notice period was 10 months. As a result, the entitlement to the bonus was determined as if the employee had been employed for the entirety of 2016, and for the first 9 months of 2017.
The employer objected to the awarding of any bonus. It argued that the bonuses were discretionary. However, the employee had earned a bonus during the five years of employment preceding the termination. As a result, even though a bonus was discretionary under the contract of employment, the Court determined that it would likely have been part of the employee’s compensation package and could be awarded as an element of pay in lieu of notice.
The employer further argued that there was an unwritten policy that employees were not eligible for bonuses that would become payable after their dismissal. The Court rejected this argument for lack of evidence supporting the policy.
In determining the employee’s eligibility for the 2016 bonus, the court noted that profitability had been a significant bonus criterion in prior years. The company had grown and had become more profitable during 2016. In addition, if reasonable notice had been provided to the employee, he would have been employed for the entirety of 2016, ending any question of eligibility.
As a result, the Court awarded the employee an amount in lieu of bonus for 2016. It determined that the most reasonable value of that award, given the discretionary nature of the bonus was the amount of the prior year’s bonus.
The 2017 bonus was a different story. The Court noted that even had the employee been given the proper amount of notice, his employment would have ended well before the end of 2017. The Court also noted that had notice been given, the employee would have been expected to use that time to seek alternate employment. The implication appeared to be that the employee’s results during this period might not be as strong as during periods where his full attention was on his job.
As a result of these findings, the court determined that the employee’s assertion that he would have earned a bonus for 2017 had reasonable notice been given was too speculative, and that claim was dismissed.
The decision in Fulmer goes to show how even within a single employment relationship, the entitlement to a bonus for any given period can rest on unpredictable and minute factors.
In order to avoid unpredictable disputes about bonus entitlement, employers are well advised to use contractual language to limit bonus entitlement on termination, rather than leaving the eligibility language to practice or solely within expressing limitations within the bonus plan.