Digital Brain
digital brain
digital brain

Bonus Claims: Past Practice Gets A Boost

November 2017 Employment and Labour Bulletin 2 minute read

In many executive terminations, counsel operate under the flawed assumption that a lack of clear termination wording automatically results in a bonus obligation during the notice period. The recent Ontario decision in Cunningham v Design Filtration Microzone Inc., 2017 ONSC 5486 confirms that a more careful review of past practice may deny so-called “notice period bonus” claims.

Craig Cunningham was an accomplished senior executive who was dismissed without cause after eight years service. He brought a wrongful dismissal case and was ultimately awarded 12 months notice.

A contentious issue in the case was Cunningham’s claim for bonus, which had two elements: bonus during year of termination, and bonus during the notice period.

The company’s response to both elements of the bonus claim was that payment of bonuses was entirely discretionary.  This position was supported by the fact that no bonus had been paid in two of the four years which preceded termination.

The Court’s decision was a mixed result, allowing the claim for bonus during the year of termination, and rejecting the claim for bonus during the notice period. In the year of termination, the evidence was that the company president expected to pay bonuses based on financial results. A bonus was therefore awarded to Cunningham based on previous awards.

For the notice period, the judge accepted that the bonus plan and any potential entitlement was discretionary. It would thus be improper to award any bonus to a dismissed employee, since that would put them in a better position than those who remained employed.

Takeaways for Employers

Limiting bonus entitlements, both during the year of termination and the notice period, continue to be scrutinized by the courts. This decision highlights, yet again, the importance of carefully reviewing what specific items will be included in a potential notice award – the courts have long recognized that, absent a clear written agreement to the contrary, dismissed employees may claim all elements of compensation. As a result, employers must either have a clearly worded contract or bonus plan, or evidence that any variable compensation is discretionary or irregular. For new employees or those being offered a new benefit, close review of termination wording and compensation plan documentation is crucial. And for all employees, a close review of practice and approach to compensation is strongly recommended.

by George Waggott and Martin Thompson

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2017

Insights (5 Posts)

Featured Insight

Corporate Counsel Webinar | Beyond the Basics: Tools and Strategies to Create a More Inclusive Legal Work Environment

Join our guest speaker, Jodie Glean-Mitchell, Executive Director of Equity, Diversity and Inclusion, from the University of Toronto as we invite participants to dive deeper into the intricacies of intersectional identities and experiences with (micro)aggressions and their implications for the legal work environment.

Details
Tuesday, December 13, 2022
Featured Insight

The Exclusion of Intrusion Upon Seclusion: Ontario Court of Appeal definitively determines that “Database Defendants” cannot be held liable for intrusions committed by third-party hackers

The Court of Appeal for Ontario released a trio of decisions that materially impact the viability of class actions following a data breach.

Read More
Dec 1, 2022
Featured Insight

20 More Years of Copyright Protection Starting December 30, 2022

The extension of general copyright protections from 50 years to 70 years after the life of the author shall come into force on December 30, 2022.

Read More
Nov 30, 2022
Featured Insight

Canada Embraces the Indo-Pacific: New Canadian Strategy Expands Opportunities for Two-way Trade and Investment

Canada announces new Indo-Pacific Strategy, applies to join Indo-Pacific Economic Framework, and what it all means for Canadian businesses.

Read More
Nov 30, 2022
Featured Insight

Reporting Issuers Need to be Factual and Balanced, Striving for Accurate and Comprehensive ESG reporting

The CSA cautions issuers against overly promotional "greenwashing" language in continuous disclosure in its biennial report - Staff Notice 51-364.

Read More
Nov 30, 2022