Employers often assert that a terminated employee is not entitled to a bonus for the termination year. A decision of an Ontario court may put a small qualification on that assertion. Employers should review their bonus policies in light of this decision.
The employer terminated the employee’s employment on May 25, 2010 on a without-cause basis. On June 18, 2010 – within the employee’s four-week Employment Standards Act notice period – the employer announced its profit sharing bonus for the recently-ended fiscal year and paid it out. The employer did not pay that bonus to the employee. The employee had been paid the bonus for her three previous years of employment. The bonus was a “very significant financial part of her overall compensation.”
Mr. Justice Ricchetti of the Ontario Superior Court of Justice held that section 61(1)(a) of the Employment Standards Act “permits the employer to terminate without notice but only if the employee receives what the employee would otherwise been entitled to receive from the employer under the terms and conditions of employment during the statutory notice.”
The judge held that under the employer’s bonus plan and practices, the decision as to whether to award profit sharing at all may have been discretionary, but once the bonus had been declared, the employer had no discretion to exclude a particular employee from entitlement. As such, all employees who were employed on June 18, 2010 were entitled to the profit sharing bonus. Because that date was within the employee’s four-week Employment Standards Act notice period, she was deemed to be “employed” at that time, and was thus entitled to the profit sharing bonus payment. An employer memo, issued a few months earlier, to the effect that only “active” employees were entitled to the bonus, did not override the statutory obligation to pay the bonus to the employee.