Courts Are Prepared to Pay Years’ Worth of Bonuses as Part of Compensation to Terminated Employees

Employers that decide to end an employee’s employment must provide a significant period of guaranteed employment to the individual so that they can find another job or if the employer prefers that the person not continue to work, then equal compensation for the lack of notice. If not, then an employee would likely have a claim from wrongful dismissal. 

While employees are regularly awarded significant compensation for termination (often equal to years of salary), it is not uncommon for employers and employees to have disputes over what items should be included in compensation for termination of employment.   

Specifically, disagreement will often arise in relation to whether an individual should receive compensation for items in addition to their base salary, such as bonus payments.  Employers in particular often believe that employees should not receive payments for bonuses, particularly since they are no longer at work.    

While it may appear at first glance unfair to provide bonus payments to employees who are no longer working (since they are no longer making a direct contribution to the productivity of the company), courts do not agree. 

Rather, courts have reminded employers that they alone have the control of deciding whether to provide an employee with notice of termination.  Given that, employees should not be punished for the fact that the employer chose to provide payment in lieu of notice.  In other words, employees are entitled to all parts of their compensation regardless of whether they are provided notice or not. 

A recent reminder of this can be found in a decision of the Ontario courts called Dawe v. Equitable Life Insurance Company of Canada. 

The case involved a 62-year-old Senior Vice President who was dismissed after working at the company for 37 years. 

The employee asked the court to provide him with a payment equal to 30 months of notice which would include all elements of his compensation.  While the original court awarded the employee with 30 months’ worth of compensation, the court of appeal reduced this amount to 24 months.

Setting the issue of the notice period aside, both the Superior Court of Ontario and the Ontario Court of Appeal agreed that the former employee was entitled to be paid for 24 months’ worth of bonus payments. 

While the employer argued that the employee should not be entitled to this payment (including because they believed the contract he signed removed bonus amounts from any termination payment), the court disagreed. The court stated that the contract was vague, ambiguous, and not brought to the former employee’s attention, and therefore it was not enforceable. 

The court also reminded employers that employees are entitled to be provided everything on termination of employment, including bonus payments.   

YES, THAT DOES INCLUDE THE BONUS

The case is a reminder that courts will provide employees with all compensation that they should have received had they been provided with notice of termination of employment. This includes base salary, benefits, stock options, bonuses and even, where applicable, allowances such as a car allowance. While an employer can contract out of this entitlement, courts will only enforce this when it is done in a manner that is clear to the employee, both in the terms of the contract and in all verbal communications. 

If you require assistance in determining whether you are entitled to your bonus or any other components of compensation during your notice period and/or if you have been the victim of wrongful dismissal, then feel free to contact a qualified Toronto employment lawyer at Sultan Lawyers by telephone at 416-214-5111 or by here.