In Dawe v. Equitable Life Insurance Co. of Canada, the Court of Appeal recently reviewed the circumstances when an employee may be entitled to a bonus payment during a notice period.
The case involved an employee (“Mr. Dawe”) who had worked for Equitable Life Insurance as a Senior Vice President. Mr. Dawe’s employment was terminated in October 2015 after 37 years of employment. At trial, he was awarded thirty (30) months of reasonable notice, along with all bonuses that he would have earned during this period finding that the bonuses were an integral part of the compensation package. The Court of Appeal reduced the reasonable notice period to twenty-four (24) months given the absence of any exceptional circumstances that warranted a period beyond 24 months. On appeal, the employer argued that the employee was not entitled to the bonus payments during the notice period.
The Employee’s compensation package was comprised of a base salary and a cash bonus along with various other benefits. The bonus scheme changed throughout the years and Equitable Life imposed these changes unilaterally. The changes were not negotiated, nor were there any “sign off” required from those affected by the changes. In 2006, Equitable Life introduced two new bonus plans, a Long Term Incentive Plan (LTIP) and Short Term Incentive Plan (STIP) which both introduced new provisions that substantially limited employee’s bonus entitlements in circumstances of resignation, termination for cause, retirement, death and termination without cause. In the case of a termination without cause, the plans provided for a “Terminal Award” which was a prorated amount to the last day of “active employment” and required the employee to sign a Full & Final Release to get the payment.
In order for a bonus to be payable to an employee after a dismissal, the Courts have outlined the following test as stated by the Court of Appeal in the Paquette v. TeraGo Networks Inc. case:
- Was the bonus an integral part of the employee’s compensation package?
- If it was integral, is there any language in the bonus plan that would specifically remove the employee’s common law entitlement to payment?
At trial, the Court determined that the bonus was an integral part of the individual’s payment because of the fact that he was awarded the bonus with the exception of two years that he worked there, and the language within the plan describing it as “an integral component of Equitable executive cash compensation strategy”.
The Court of Appeal agreed with his assessment. Turning to the language in the Plan, the Court of Appeal agreed that there was clear language in the Plan that removed the employee’s entitlement to the payment during the notice period. However, while the clauses were sufficient to deny payment, the employer did not adequately implement the Plan or bring the provisions of the Plan to the attention of the employee, as it was imposed unilaterally and not brought to the attention of the employee at any time before the termination.
As a result, Mr. Dawe was entitled to a full bonus payment during the notice period. The result for employers is that where any bonus plan is provided to employees, employers need to ensure that there is very clear language addressing eligibility for the bonus payments upon termination. These provisions must be brought to the attention of employees and should not be imposed unilaterally.