Bonus Issues on Resignation or Termination of Employment

The General Rule

In the absence of a contract which says otherwise, a terminated employee may usually claim their expected salary over the notice period and also any other benefits which would be expected over this time period.

These additional claims may include pension credits, car allowances, and also any anticipated bonus payments which would have normally come due in the notice period.

The same rule will apply to an employee who has given advance notice of termination. They will be entitled to all forms of income for this period, even if the employer’s response is to terminate.

Contract to the Contrary

Many employers do not take well to the concept of paying an employee who is no longer coming to work and, in particular, such bonus sums and even more so when an employee has resigned.

This issue was considered recently in the Ontario Court of Appeal.[1] There were two forces colliding with one another in this case. The first one came from an employment contract which demanded that the employee be in active employment to receive the bonus payment.

The bonus, once “earned” in a year 1, was then paid out over the three subsequent years.  The employee resigned his employment in the currency of these three years. There remained unpaid bonus sums of $115,000.

The opposing force came from the Employment Standards Act which, in essence, preserves the employee’s right to claim all income earned without offset.[2]

Decision Goes to the Employer

The Court of Appeal agreed with the employer’s argument, namely, that it could by the terms of its contract define when the bonus sum was “earned”. If the parties chose to state by contract that the bonus is “earned” only by active employment, it could do so.

This does seem wrong, but the Court of Appeal is the Court of Appeal. We will keep you advised if the case is taken to the Supreme Court of Canada, which is a difficult road.

Preventive Legal Advice

This case is a good example of the need to take solid legal advice prior to acting. Employment contracts are complex creatures.  Get advice and know your rights before signing and before acting.  Contact the offices of Guelph employment lawyer Peter McSherry. We can guide you through the issues, help you understand your rights, and defend your position. Contact us online or by phone at 519-821-5465 to schedule a consultation.

 

 

 

 

[1] Bois v MD Physician

[2] Section 11(5) of the Employment Standards Act, 2000 states:

11(5) If an employee’s employment ends, the employer shall pay any wages to which the employee is entitled to the employee not later than the later of,

(a) seven days after the employment ends; and

(b) the day that would have been the employee’s next pay day.

Section 13(1) of the statute states that an employer shall not “withhold wages payable to an employee, make a deduction from an employee’s wages or cause the employee to return his or her wages to the employer.”