Ontario’s Employment Standards Act, 2000 is a finicky beast.  Although it protects an employee’s entitlements on termination to things such as benefit continuation, notice or pay in lieu, vacation pay, and so forth, employers can also use it to limit an employee’s termination entitlements to the Act’s bare minimums.  As seen below, these minimum standards aren't always beneficial to employees.

Background to the ESA Bonus Dispute

The recent case of Dimson v. KTI Kanatek Technologies dealt with a termination provision that restricted an employee’s entitlement to a bonus payment under the ESA.

The termination clause at issue stated:

18(c)  In addition, KANATEK may terminate this Agreement at its sole discretion for any reason, upon providing Employee all payments or entitlements in accordance with the standards set out in the Ontario Employment Standards Act, as may be amended from time to time.

(d)  If at any time KANATEK provides you with a bonus, it will not be included in the calculation of payment for the purpose of this Article or as otherwise agreed to or required by the Employment Standards Act.

The employer did not average the employee’s bonus earnings into the termination payments, but rather maintained that because the plaintiff did not receive a bonus during the 12 weeks prior to the termination, the bonus could not form part of the termination and severance pay calculations as prescribed by the ESA.

Court Applies ESA’s 12-Week Window to Bonus Eligibility

Recall that under the ESA, for employees who “do not have a regular workweek” or if the employee “is paid on the basis other than time”, employers must average earnings over the previous 12 weeks in order to calculate appropriate termination and severance pay.

The Court held that these ESA sections governed the payment of the disputed bonus, stating that “[w]hether a bonus is to be included in the calculation of termination entitlements under the ESA depends upon the date of termination in relation to the preceding 12 week period…[i]n some cases, it would be included while in others, it would not.”

Accordingly, the Court found nothing illegal about the termination provision, and in doing so, rejected the plaintiff’s argument that it was an unlawful attempt to contract out of a bonus payment otherwise required by the ESA.Rather, the Court accepted that the “plain, literal and sensible meaning” of the provision was that “if…the bonus is to be taken into calculation under the ESA, then it is to be included as it is required by statute”, i.e. needing to fall within the preceding 12 week period. [Emphasis added]

What Does This Mean for Employers?

Although we understand this case is currently under appeal, it is a useful reminder that employers are permitted to restrict an employee’s termination entitlements to the bare minimum prescribed by the ESA and no more.Given the prevailing climate of fiscal restraint, prudent employers should consult with their employment counsel on how to strategically transition their workforce to these kinds of cost-effective termination arrangements.