Williams HR Law LLP

REVISITED: EMPLOYEES RECEIVING PAY IN LIEU OF NOTICE NOT NECESSARILY ENTITLED TO BONUS PAYOUT

October 5, 2016

[vc_row][vc_column width=”1/3″][vc_single_image image=”173″ img_size=”full”][/vc_column][vc_column width=”2/3″][vc_column_text]The Ontario Court of Appeal recently overturned the Superior Court of Justice’s 2015 decisionin Paquette v. TeraGo Networks Inc. regarding an employee’s right to bonus payments

post-termination. Although the Court of Appeal ultimately awarded Mr. Paquette, a former TeraGo Networks employee, a bonus that was payable during the reasonable notice period, it also provided guidance on effectively limiting employees’ post-termination eligibility for bonus payments.

The Superior Court’s Decision

Just over a year ago, we blogged about the implications of the Superior Court of Justice’s decision in Paquette v TeraGo Networks Inc. TeraGo Networks successfully argued that Mr. Paquette was not entitled to a bonus that would have been paid during the reasonable notice period because the terms of the bonus plan required that Mr. Paquette be “actively employed” on the date the bonus was to be paid. Mr. Paquette argued that he was notionally employed by TeraGo Networks during the notice period, and therefore was entitled to his bonus. Mr. Paquette appealed the denial of his bonus to the Ontario Court of Appeal.

The Court of Appeal’s Decision

The Court of Appeal overturned the lower court’s decision and awarded Mr. Paquette the value of the bonuses payable during the reasonable notice period. The Court of Appeal reasoned that at common law, Mr. Paquette was entitled to the compensation that he would have received, including any bonus payments, had he continued in his employment during the reasonable notice period, or damages for the lost opportunity to earn a bonus during that time. This determination is unrelated to whether Mr. Paquette was notionally or actively employed at the time of the payment.

It then evaluated the terms of the bonus plan to determine whether the bonus plan altered or removed the appellant’s common law rights. The Court of Appeal found that the bonus plan did not unambiguously alter Mr. Paquette’s common law right to be compensated for his bonus. It concluded that “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.”

Take Away Points

The Court of Appeal’s decision in Paquette suggests that there are only two effective ways of divesting an employee of a bonus that would otherwise have been payable during the reasonable notice period.

  1. Include language in the bonus plan that effectively limits the employee’s post-termination eligibility to receive payment.
  2. Demonstrate that the employee would not have received a payment or that the bonus would have been nil as per the terms of the bonus plan notwithstanding the employee’s eligibility to still participate in it during their reasonable notice period.

 

This blog is provided as information and a summary of workplace legal issues.

This information is not intended as legal advice.

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