Don’t assume bonus not payable over notice period
These days, bonuses are an increasingly common part of employee compensation. Sometimes they are called short term incentive plans. Sometimes they are called long term incentive plans. Regardless of the name, their purpose is to motivate employees to work hard for the good of the company and to stick around to get that bonus payment.
Employers, however, generally hate the thought of paying out bonuses to people that they terminated because they did not like them anymore. They often have a visceral reaction to even the thought. But if employers are going to create a contractual relationship where no claim can be made for the loss bonus over a notice period, they have to use very careful wording when designing their bonus plan.
Kevin was a chemical engineer who held very senior positions within a large food company for fourteen years. When he finally left, it was not because he was terminated outright by the employer. He was constructively dismissed as a result of a number of years of marginalization, being ostracized, losing responsibilities and being outright lied to and repeatedly threatened with loss of his job.
The judge at trial agreed that, cumulatively, Kevin was treated so badly that he had the right to take the position he was constructively dismissed. The judge decided that Kevin should have been provided with fifteen months notice of his termination. When the courts are awarding damages for lack of reasonable notice, they try to put the employee in the same position they would have been in if they had received working notice. At first glance, that includes lost wages, benefits and pension coverage as well as any bonuses or commissions that would have been received over the notice period. As a senior executive Kevin was entitled to a huge bonus payment in the event of the sale of the company. Such bonus plans are not uncommon with senior executives whose day to day work can affect the success and marketability of the company. Thirteen months after Kevin walked out the door, the company was sold. If Kevin had been actively employed on that day thirteen month later, he would have received a payment of over a million dollars as a result of his bonus plan. Of course, with so much at stake this matter was litigated right up to the Supreme Court of Canada.
The employer’s bonus plan said two things. The first was that if Kevin had to be actively employed on the date of any sale to get the bonus. If he had been given fifteen months advance working notice, he would have been employed on that day so that part of the bonus plan did not save the employer. The second thing the bonus plan said was that the bonus plan “does not have any current or future value other than on the date of (sale) and shall not be calculated as part of the employees compensation for any purpose, including in connection with the employees resignation or in any severance calculation.” It is partly the word “severance” that sunk the employer’s case. In many employment standards statues throughout the country, an employee is paid “severance” pay without reduction if they find new work immediately in recognition of their years of service and loyalty to the company. Severance pay is not the same as pay in lieu of the working notice one should have received. Although we often use them interchangeably, those terms are different at law.
The court held that if the employer wanted to effectively exclude Kevin’s entitlement to the bonus payment it had to be precise and clear. It was not. Whether it’s fair or not, the courts are always going to recognize the unequal bargaining power an employee has in this situation and put the onus on the employer who drafts these documents to prove unambiguous and clear communications. Terminated employees should not assume that they do not get the bonus they would have received over a reasonable notice period because of wording in a bonus plan. The law keeps changing and the issue must be examined by an employment lawyer. Employers need to carefully draft their bonus plans if they don’t want to end up in the same situation as Kevin’s employer did.
