Ontario Court Concludes That Failure to Pay $328,000 Bonus is Not Constructive Dismissal

Written on behalf of Peter McSherry

In the recent decision Chapman v. GPM Investment Management and Integrated Asset Management Corporation, 2015 ONSC 6591 [Chapman], the Ontario Superior Court of Justice held that an employer’s failure to pay a $328,000 bonus did not constitute constructive dismissal. For employees, this case sends a clear message that, absent other compounding conduct by the employer, a onetime non-payment of a bonus is unlikely to amount to constructive dismissal.

In Chapman, the plaintiff was employed as CEO of GPM Investment Management and Integrated Asset Management Corporation (“GPM”). As CEO, Chapman received remuneration in excess of $1 million per year. The memorandum of understanding that set out the terms of Chapman’s employment included a bonus clause which provided for an annual bonus equal to 10% of pre-tax profits. In 2011, GPM divested itself of a land interest. Capital gains from this sale were not included in Chapman’s bonus calculation, a decision which meant Chapman would miss out on a payment of $328,000. Chapman took the position that GPM’s failure to pay him the bonus was a fundamental breach of the terms of his employment, and, therefore, constituted constructive dismissal. Accordingly, Chapman brought an action seeking damages for wrongful dismissal and payment of his bonus.

In considering Chapman’s claim, the Court applied the two branch test for constructive dismissal, which asks:

1) Has the employer unilaterally breached a term of employment such that a reasonable person in the position of the employee would conclude that an essential term of employment is being substantially changed?
OR
2) Has the employer engaged in a course of conduct that, when viewed in light of all of the circumstances, would lead a reasonable person to conclude that the employer no longer intends to be bound by the terms of the employment contract?

In Chapman, the Court held that the profits earned from the sale of the land interest should have been included in calculating the employee’s bonus. However, the Court did not agree that the GPM’s failure to pay the bonus amounted to constructive dismissal. The Court noted that the employer’s failure to pay the bonus in the circumstances resulted from a disagreement over the interpretation of Chapman’s bonus clause as it applied to a one-off transaction. There was no alteration of the terms of employment in the circumstances and no other conduct by the employer to support the conclusion that it no longer intended to be bound by the employment relationship. The Court rejected Chapman’s argument that it was untenable for him to sue his employer for the failure to pay his bonus and keep working. The Court concluded that Chapman had alternatives available to him, including pursuing mediation or arbitration of the matter. The Court also noted more generally that an employee can sue his or her employer for damages without alleging constructive dismissal.

A key takeaway point from Chapman for employees is that, absent other compounding conduct by the employer, a onetime non-payment of a bonus is unlikely to constitute constructive dismissal. To find out more about wrongful dismissal and constructive dismissal, contact employment lawyer Peter McSherry online or at 519-821-5465.
To read the full decision, click here.