A recent Ontario Superior Court of Justice decision upheld a provision in a written bonus program that required an employee to be “actively employed on the date of the bonus payout”. This finding meant that the wrongfully dismissed employee did not receive the value of his bonus during his common law notice period because, as stated by the Court: “[the employee] may be notionally an employee during the reasonable notice period; however, he will not be an “active employee” and, therefore, he does not qualify for a bonus.”
This case is good news for employers as it suggests that employment agreements and bonus plans can be drafted such that employees must be “actively employed” on the bonus payment date in order to receive a bonus. The result is that an employer can contract out of its obligation to provide a bonus over the common law notice period. In many cases, proper drafting could save an employer a significant amount of money in severance costs. However, employers should keep in mind the following 3 points:
- Clauses that limit severance and/or bonus entitlements on termination are very technical clauses that need to be drafted with precision. Without this precision, it is very easy for these clauses to violate the minimum standards of, for example, the Alberta Employment Standards Code;
- It is important for the provisions of different documents to be reviewed so that they are in synch with each other. For example, it is not uncommon for both a bonus plan and employment agreement to try to limit rights to a bonus payment upon termination of employment, but use language that is inconsistent with each other. Employees can use any inconsistency and ambiguity in their favour; and
- If an employer wants to rely on the terms of a bonus plan, it should either be referenced in the employment agreement, provided to the employee, and agreed to at the time of hiring or else be provided or amended with valid consideration.