For many employees, bonus pay is often a significant part of their overall job compensation. For instance, I regularly assist employees who have lost their job to negotiate better financial severance packages, or even in negotiating a more favourable employment contract, with the aim of obtaining more compensation (and the amount they truly deserve).
One frequent issue we encounter as employment lawyers assisting in wrongful dismissal claims is employers who stubbornly to provide an employee’s expected bonus payout once their employment is terminated.
If you happen to be one of those employees who recently lost your job and are wondering about whether you are owed a bonus from your employer, we recommend contacting our employment lawyer at Bune Law, Toronto employment law firm, to discuss your rights and options. As with many cases, you may be entitled to receive your bonus pay as part of your overall severance package compensation, which can be of great importance after losing your job.
How Do Employers Legally Terminate an Employee’s Job?
Under Ontario employment law, employers are allowed to terminate an employee’s job at any time, and this is usually done “without cause”. In other words, the employer does not have to provide a specific reason (such as bad performance, theft, dishonest, etc.), as long as they provide them with prior adequate notice of termination, or a severance package consisting of the equivalent in compensation
For employment termination, there is a common law (default) rule that employees must be given reasonable notice upon termination without cause, or payment in lieu of notice (a “severance package”). That default rule can be rebutted if an employee has signed a valid employment contract that clearly specifies some other period of notice, or severance package. In ever case, any employment contract between an employer and employee can legally reduce an employee’s termination entitlements below common law entitlements, but only if they comply with the minimum applicable employment standards. For federally-regulated employees, that legislation is called the Canada Labour Code. For provincially-regulated employees, that legislation is called the Employment Standards Act, 2000. However, in every case where an employee is terminated without cause, the employer is generally required to provide all of the compensation the employee would have received during the statutory notice period, including base salary, pension contributions, benefits continuation, paying car allowance, vacation pay and bonus pay.
The critical point is this: if an employer attempts to contract out of (waive or reduce) the minimum standards required by the legislation, the employment contract will be deemed legally unenforceable (invalid). In those circumstances, the common law default rule is not rebutted and the employee is entitled to reasonable notice of termination, or a severance package, based on common law (which proves far greater severance package entitlements than the minimum legislation standards).
The primary purpose of providing reasonable notice (or damages in lieu thereof) is to protect employees by providing them an opportunity to seek alternative employment.
In determining the specific amount of notice of termination or severance package an employer must provide under common law rules, the courts consider several factors, including:
- whether an employee has signed an employment contract with a valid termination clause that sets out how much the employee is entitled to receive
- the employee’s age
- the employee’s number of years continuously employed with the employer
- the employee’s educational and job qualifications
- economic circumstances at the time of termination
- and other factors (e.g., disability, etc.)
What Do Employees Get When Their Employment is Terminated Without Cause?
In a wrongful dismissal case, the basic principle is that the terminated employee is entitled to receive compensation for all losses arising from the employer’s breach of contract in failing to give adequate notice of termination. The point of such severance packages is to place the employee in the same financial position he or she would have been in had the employer complied with their obligation to provide adequate notice and allowed the employee to work until their last day of employment (called “working notice” of termination). In other words, in determining damages for wrongful dismissal, the court will typically include all of the compensation and benefits that the employee would have earned during the notice period.
Severance Packages Should Include an Employee’s Typical Bonus Pay
Damages for wrongful dismissal may include an amount for a bonus the employee would have received had he or she continued in their employment during the notice period, or damages for the lost opportunity to earn a bonus. This is generally the case where the bonus is an integral part of the employee’s compensation package, and regardless of whether the bonus is described as “discretionary.” The only exception is if the employer has a valid document that legally alters or removes an employee’s entitlement to receive bonus pay on termination (e.g., in an employment contract or bonus plan).
Test for Determining if Employer has Grounds to Refuse to Pay an Employee’s Bonus Pay
The first step is to determine whether the employer has a bonus plan in place, which is referred to in various ways: “annual incentive compensation,” “variable compensation,” “short-term incentive plan,” and so on.
The second steps is to determine what types of damages (compensation) the employee is entitled to receive upon termination of employment, and specifically, whether the employee was entitled to compensation for bonuses he would have earned had the employer not breached the employment contract. In other words, courts examine whether, but for the wrongful termination, the employee would have been entitled to the bonus during the reasonable notice period. For example, would the employer have paid out bonuses to its employees? This includes bonus earned until the employee’s termination date, as well as the lost opportunity to earn bonus.
The third step is to determine whether there is something in a legal document, such as an employment contact or bonus plan, that specifically removes the employee’s legal entitlement. Here, the question is whether the wording of the plan (or employment contract) unambiguously alters or removes the employee’s common law rights to a bonus. This is an exceptionally high hurdle for employers to prove. For the purpose of calculating wrongful dismissal damages, the employment contract is not treated as terminated until after the reasonable notice period expires.
To summarize, the courts ask three questions when determining whether an employee’s wrongful dismissal damages or severance package should include bonus payments and certain other benefits (e.g., pension plan contributions). Would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period? If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right?
Examples Where an Employer’s Bonus Plan Cannot Legally Limit an Employee’s Bonus Pay Entitlement in a Wrongful Dismissal or Severance Package
As stated above, an employer’s ability to avoid paying an employee’s bonus payments on termination of employment is severely limited. In fact, to justify a refusal to pay bonus, the employment contract or bonus plan must be absolutely clear and unambiguous. So, typical language requiring an employee to be “full-time” or “active” will not suffice to remove an employee’s common law right to damages. After all, had the employee been given proper notice of termination, he would have been “full-time” or “actively employed” throughout the reasonable notice period. There are many cases where, in negotiating a severance package or advocating for an employee’s full wrongful dismissal damages, we have often relied on a legal rule that is now well established by the courts: the term “active employment” is not sufficient to limit an employee’s damages.
Similarly, where an employment contract or bonus plan purports to remove an employee’s common law right to damages upon termination “with or without cause”, this language will not suffice. After all, an employer should be allowed to benefit from its own legal violations by committing an unlawful termination (wrongful dismissal) and still refuse to pay an employee’s full legal entitlements. Also, exclusion clauses that attempt to remove or limit an employee’s bonus pay “must clearly cover the exact circumstances which have arisen”. Also, the purpose of calculating wrongful dismissal damages, the employment contract is not treated as “terminated” until after the reasonable notice period expires.
For instance, in Andros v. Colliers Macaulay Nicholls, the Court held that where a bonus is an integral part of the employee’s compensation and non-discretionary, damages for wrongful dismissal should include “both the bonus actually earned before being terminated and the bonus that would have been earned during the notice period, unless the terms of the bonus plan alter or remove that right.
Contact Our Ontario Employment Lawyer
As an employment law firm, we understand the loss of employment can be extremely traumatic and financially devastating. If you have recently lost your job, do not hesitate to call our employment lawyer for a confidential, no-obligation consultation. An employment lawyer will help you to understand your rights and the types of compensation you may be entitled to, including severance package review and negotiation with your employer on your behalf! So, if you’re wondering: “Can I get my bonus pay if I am fired or lose my job,” the answer is “yes, in most cases.”
Whether you are an employee who was terminated without cause (or even with cause) and want to know if you have a valid wrongful dismissal claim allowing our employment lawyer to obtain your severance package, or an employer who believes you have grounds to terminate one of your employees, please contact our experienced employment lawyer at Bune Law can help. Contact us by phone 647-822-5492 or fill out the contact form to the side. We would be happy to assist in your employment law matter as quickly as possible.
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