As with everything, it depends. But with a properly worded bonus plan or contract, employers stand a much better chance of being able to avoid paying bonus obligations to terminated employees. Take, for example, the recent Ontario Superior Court decision inKielb v. National Money Mart Company. The Justice in that case summarized the facts as follows:
allegations of broken promises, ambiguous clauses and inequitable treatment and, at its heart, a contract that was both enticing in its promises and cruel in its execution .
This decision proves that employers can limit bonus payment liability on termination by using clear and unambiguous language in employment contracts.
The main issue in Kielb was whether the language of the employment contract restricted the former employee's entitlement to a bonus. The employment contract required the employee to be actively employed at the time of the bonus payout or, if terminated, the employee had to be within the statutory notice period. The Court held that the employment contract was enforceable.
The clause limiting the bonus payment clearly set out how the bonus plan worked. It was clear that the former employee would not be entitled to any bonus payments if he or she was not employed at the time the Company made the bonus payout. Although some terms of the employment contract, such as the termination payment, may seem draconian in their application, the language was clear and it was part of an agreement entered into with the former employee's full knowledge.
The former employer successfully relied upon the clause limiting bonus payment as its defence. The employment contract was found to be unambiguous. The former employee, who was a lawyer, clearly understood the clause. The Court noted as follows:
public policy would be ill served by permitting the plaintiff to accept a potentially lucrative position with the full knowledge that it contained a potentially unfavourable limitation clause and then to complain when that clause was actually executed.
There is nothing preventing such a clause from applying even if the former employee worked the entire bonus year. And the same considerations would apply for federally-regulated and provincially-regulated employers. Employers should consider their contracts and whether limiting bonus liability, post-termination, in this way would work for them.