BONUS ENTITLEMENTS AND TERMINATED EMPLOYEES – THE IMPORTANCE OF CLEAR EMPLOYMENT CONTRACTS

March 01, 2017

Paquette v. TeraGo Networks Inc.,  2016 ONCA  618

                This recent decision of the Ontario Court of Appeal once again highlights the importance of having clear language in employment agreements.

The employer’s bonus program included a provision that it was payable to an employee who was “actively employed” on the date that the bonus was actually paid. The lower court found that the employee was entitled to 17 months’ notice of termination, but denied the employee’s claim to the bonus on the basis that, on the wording of the employment agreement, he was not “actively employed” at the time the bonus was paid because he had been terminated prior to that date.

The Court of Appeal , however,  reversed the lower court’s decision and awarded the bonus to the employee stating, in part:

  • Damages for wrongful dismissal may include an amount for the bonus the employee would have received had he continued to be employed during the notice of termination period or damages for the loss of the opportunity to earn the bonus.
  • One must first consider the employee’s common law rights. In doing so the Court determined that “had the (employee) been terminated within the 17 months’ reasonable notice period fixed by (the lower court) the employee would have been ‘actively employed’ when the bonuses were paid.”
  • Once that determination was made, then one must look at the wording of the employment contract to determine if there is clear language which removes or limits the employee’s common law rights.

In other words, once it is determined that an employee is entitled to a bonus payment as a matter of law, then the employee may “contract out” of that entitlement only if the language in the employment contract makes that very clear.

It is important to remember that the Court in this case was dealing with common law rights of employees on termination, not their statutory rights as provided for in the Employment Standards Act, 2000 (the “Act”). The Act specifically states that terms of an employment agreement which seek to “contract out” out of its provisions are void and unenforceable.

Jeffrey A.L. Kriwetz
E-mail: jkriwetz@garfinkle.com
Direct Line: 416.869.7618

*Please note: The views expressed in this article are those of the writer and have been provided for information purposes only. Nothing in this article should be relied on as specific legal advice in any particular case. For such advice, please contact the writer directly.

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