Update on Employee Bonus Entitlements after Dismissal

Another recent Ontario Court of Appeal decision clarifies aspects of the law on employee bonus entitlements after dismissal.

On April 13, 2018, the Ontario Court of Appeal released its decision in Singer v. Nordstrong Equipment Limited, 2018 ONCA 364 (CanLII). This case is yet another in a line of recent appeals that deal with the issue of employee bonus entitlements after dismissal. This brief case summary of Singer is an addendum to my March 31, 2018 piece on the topic.

Singer

Singer’s employment was terminated with insufficient notice. He was awarded compensation for lost pay during the period of 17 months’ notice he ought to have received. However, while the lower-court awarded Singer a prorated bonus for the partial year he worked before termination, the court denied Singer any compensation for bonuses he would have received during the notice period.

The Ontario Court of Appeal overturned the lower-court judge on this point. Singer was awarded not only a prorated bonus for the period he actually worked, but a further prorated bonus for the entirety of his 17-month notice period. The Court of Appeal reached this conclusion reaffirming the approach set out in Paquette.

There was no limiting language in Singer’s bonus plan which would restrict his entitlement to compensation for bonuses during his notice period.

Two Useful Takeaways from Singer

The Singer decision clarifies two incidental points arising out of the prior caselaw.

1. Stub Periods

While the court in Singer cited Paquette with approval, the court actually awarded Singer more than Paquette.

Paquette only received compensation for bonuses whose payout dates fell within his notice period. He did not receive a prorated bonus for the stub year at the end of his notice period (for which the bonus payout date fell outside his notice period).

However, Singer received a prorated payment for his entire notice period, regardless of where the bonus payout date would have fallen.

The court did not overtly address this point in either case. The difference in result may be explained simply by noting that Paquette doesn’t seem to have ever asked for a prorated payment for his stub period. No principled distinction can be found between the cases. The Singer decision makes it clear that an employee can get a prorated bonus even when the payout date falls outside the notice period.

2. The “Purpose” of a Bonus

The court in Singer also cited Lin with approval. However, the court departs somewhat from one of the factors considered in Lin.

Lin was awarded a prorated bonus for the stub period at the end of his notice period. However, this was only awarded for one of his two bonus plans after the lower-court judge considered the “purpose” of each bonus plan. The purpose of one plan was to ‘reward employee contributions’ whereas the purpose of the other plan was to ‘encourage retention of senior employees.’ The prorated bonus was awarded for the former bonus plan but not the latter.

The Court of Appeal did not specifically address this point in its decision in Lin but broadly upheld the lower-court’s order, leaving open the question of whether or not the “purpose” of a bonus plan is a relevant consideration.

In Singer, the employer argued that the employee should receive no bonus because the purpose of the plan was to “incentivize employees to perform.” The Court of Appeal rejected the argument by reasoning that “any bonus plan will include an aspect of incentive, as well as an aspect of reward for performance” and, while neither of these aspects will apply to a dismissed employee who is no longer working for the employer, a bonus must nevertheless be paid for the notice period if the Paquette test is satisfied.

These more recent comments from the Court of Appeal seem to undermine the relevance of a bonus plan’s “purpose” and signal an at least indirect departure from the reasoning employed by the lower-court judge in Lin.

Read more about employee bonus entitlements after dismissal here.

[Update: On July 12, 2018, the Ontario Court of Appeal released Hagholm v. Coreio Inc., 2018 ONCA 633. The employee was awarded compensation for a pro-rated bonus for the two month stub-period before termination and for the entire notice period thereafter.]