August 19, 2016 By: Dana Du Perron

With its recent decision of Paquette v. TeraGo Networks Inc., the Ontario Court of Appeal offered some much-needed clarification regarding the payment of bonuses during the reasonable notice period.

Before this decision, the case law appeared mixed on this issue in cases where the language of the bonus plan required that an employee be “actively employed” in order to receive payment of a bonus. For employee-side counsel, this rationale seemed unfair and unlawful: it essentially encouraged employers to terminate employees without working notice before a bonus payment would normally be paid. In so doing, the employer could avoid paying out a potentially significant entitlement.

In Paquette, however, the Court of Appeal took steps toward remedying the injustice imposed by some of the case law. It did so by noting that a plaintiff’s claim in any wrongful dismissal action is not for the lost bonuses themselves, but for damages to compensate the employee for the loss of the bonuses, since he or she was denied the opportunity to qualify for them when the employer failed to provide reasonable notice, thus breaching the employment contract.

Accordingly, the Court of Appeal determined that the motions judge in Paquette had erred in law by focusing on the unambiguous requirement of active employment included in the bonus plan. In so finding, the motions judge determined that the plaintiff was not entitled to payment of the lost bonus during the 17-month reasonable notice period, given that, as a result of his termination, he was no longer actively employed.

Following its own rationale in Taggart v. Canada Life Assurance Co., the Court of Appeal affirmed the two-step analysis for determining whether a bonus is payable over the course of the notice period: step one is to consider the employee’s common law right to damages for breach of contract, while step two is to determine whether the plan alters or removes that common law right. In this case, the language of the plan was not sufficient to limit the plaintiff’s common law right, such that he was entitled to payment representing his anticipated lost bonus over the full notice period.

This issue will likely continue to be litigated: just as a properly drafted employment agreement can limit an employee’s entitlement to common law reasonable notice, so it seems a properly drafted bonus plan can limit an employee’s entitlement to damages for lost bonus or lost opportunity to earn a bonus during the reasonable notice period.

If you have any questions about your own bonus, contact our Employment Law Group today.

To read the full version of this post, take a look at the article on our main site.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2018 Nelligan O’Brien Payne LLP.

Service: Employment Law