Bonuses are Owed during the Notice Period

In two decisions issued on the same day, Lin v. Ontario Teachers’ Pension Plan and Paquette v. TeraGo Networks Inc., the Ontario Court of Appeal held that terminated employees could claim unpaid bonuses as part of the damages in their wrongful dismissal claims.

The employment agreements included terms which required the employee to be actively employed in order to receive their bonuses. In Paquette, the bonus program provided that an employee must be “actively employed by TeraGo on the date of the bonus payment.”

In Lin, the relevant provisions of the bonus plans provided:

In the case where a Participant resigns or the Participant’s employment is terminated by [Teachers’] prior to the payout of a bonus (normally the first pay period in April), no bonus shall be earned by or payable to the Participant.

In both instances, the employees had been terminated before the bonus payout; however, the court found that the bonus payment dates would have fallen within the reasonable notice period.

In Paquette, the motion judge rejected the claim for damages for lost bonus payments on the basis of the contract language. Mr. Paquette appealed, arguing that he was also entitled to receive his bonus for the year.

In Lin, the trial judge included Mr. Lin’s yearly bonus payment as part of the damages. The employer appealed, on the basis of the contract language which required that the employee be in “active employment”.

In both decisions, the Ontario Court of Appeal stressed that the role of damages in wrongful dismissal claims was to place the claimant in the same financial position he would have been in had he been given proper notice of the termination of his employment. The Court found that had the terminated employees been given proper notice they would have been “actively employed” at the time of bonus payouts. Both employees were awarded the bonus they would have earned during the period of reasonable notice.

Employers can set criteria for eligibility for payment of bonuses which excludes employees who have been terminated with or without cause from the bonus plan even if the payout takes place during the notice period. In order to do so, the bonus plan must clearly outline the eligibility criteria to ensure this result. The use of “active employment” or “actively employed” are not sufficient to achieve this goal. Further, these plans must be carefully drafted to avoid any contravention of an employer’s obligations pursuant to the Employment Standards Act, 2000.