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Can a Bonus Requiring “Active Employment” be owed during the Reasonable Notice Period after a Wrongful Dismissal?

The Ontario Court of Appeal’s Decision Paquette v. TeraGo Networks Inc. 2016 ONCA 618

Background

Trevor Paquette (hereinafter the “appellant”) worked for TeraGo Networks Inc. (hereinafter the “respondent”) for fourteen (14) years. The appellant was dismissed without cause in November 2014. The appellant’s position with the respondent was as Director, Billing and Operations Support Services. The appellant earned a base salary and was entitled to bonuses under the respondent’s bonus program.

The appellant commenced an action against the respondent for wrongful dismissal after the parties failed to agree on a severance package. The parties agreed to have the matters of determining a reasonable notice period, damages and any issues related to compensation, lost bonuses and mitigation of damages be decided on summary judgement.
The motion judge found the reasonable notice period was seventeen (17) months and that the appellant was awarded damages based on his base salary and benefits that he would have received during that seventeen (17) month period. The motion judge denied the appellant’s claim for lost bonuses.

Issues

The sole issue for the Court to consider was whether an employee, who was determined to be entitled to a common law notice period upon a termination without cause, was also entitled to the bonus payments on the basis that the employer’s bonus plan required “active employment” as the bonus was paid.

The Ontario Court of Appeal’s Decision

The Court allowed the appeal and awarded the appellant additional damages equalling the bonuses he would have earned during the seventeen (17)-month notice period.  In making this determination, the Court found that the motion judge erred in assessing whether “active employment” was an ambiguous term. Rather, the Court found that first a determination of whether the appellant’s entitlement at common law for damages during the reasonable notice period included any bonuses was required. Once this determination is made, the consideration of whether the appellant’s compensation, inclusive of the bonuses, was limited by the “active employment” requirement in the bonus plan was made.

As such, and relying on “[t]he basic principle in awarding damages for wrongful dismissal is that the terminated employee is entitled to compensation for all losses arising from the employer’s breach of contract in failing to give proper notice” the Court noted that bonuses will typically be included in the compensation owed during the notice period. (para 16).
The Court found that the appellant’s participation in the bonus plan was an integral part of his compensation, and therefore had a common law right to have it included in his termination compensation.

Second, the Court assessed whether there was anything in the bonus plan which would limit the appellant’s common law right to have bonuses included in the compensation during the notice period. The Court found that the language used in the bonus plan was insufficient to disentitle the appellant’s common law entitlement. In consideration of the related jurisprudence and the parties’ positions the Court stated, “[a] term that requires active employment when the bonus is paid, without more, is not sufficient to deprive an employee terminated without reasonable notice of a claim for compensation for the bonus he or she would have received during the notice period, as part of his or her wrongful dismissal damages.” (para 47).

Therefore, the Court concluded that the appellant was entitled to damages which included compensation for loss of bonus in 2014 and the lost opportunity to earn a bonus in 2015.

Our Thoughts

While the above decision is an important take away to the common law right of employees who have been terminated without cause, it bears noting that employment contracts and/or bonus plans can greatly limit these rights during termination. These contracts or bonus plans, however, will require clear language to reflect any limitation on an employee’s entitlement to their bonuses that they would have otherwise been entitled to during the term of the notice period. It is likely prudent for both employees and employers to be aware and understand the common law rights of employees on termination before a contract or bonus plan is entered into.

The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.