Bonus Claims: Past Practice Gets A Boost
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)
Bidders can Structure Offers to Discourage the Use of Rights of First Refusal
A recent Ontario Court of Appeal decision considers the duty of good faith and honest contractual performance in the context of an asset sale involving ROFRs.
Update for Ontario Employers: Proposed Changes Related to Remote Workers
Ontario employer's should note proposed amendments to the province's employment laws that would clarify remote employees' entitlements in mass terminations.
Trademark of Foreign Owner Invalidated on the Basis of Bad Faith
Awareness of a senior rights holder’s trademark and its prior use of such trademark in Canada is relevant to the assessment of bad faith.
Fanning the Flames of Liability: The Ontario Court of Appeal Considers Product Liability Issues in Burr v. Tecumseh Products of Canada Limited
The decision of the Court of Appeal in Burr v. Tecumseh Products of Canada Limited, 2023 ONCA 135 provides a helpful overview of product liability law.
A Look at Some Key Findings by the Alberta Securities Commission in Re Bison Acquisition Corp.
On December 21, 2021, a panel of the Alberta Securities Commission issued its written decision providing its reasons for the oral ruling it made on July 12, 2021 regarding applications brought by Bison Acquisition Corp. and Brookfield Infrastructure Corporation Exchange Limited Partnership, as well as Inter Pipeline Ltd. and Pembina Pipeline Corporation.
Get updates delivered right to your inbox. You can unsubscribe at any time.