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Employment & Labour

When is a bonus entitlement not entitled?

If you earn bonuses, you may be entitled to those payouts even after you’ve been fired, says Ottawa labour and employment lawyer Paul Willetts.

“If you have bonus payments as a part of your overall compensation and you’re fired, unless there’s very clear language in your contract or bonus plan, you likely have a strong argument to receive damages for loss of those bonus payments during the applicable notice period,” says Willetts, a partner with Vey Willetts LLP.

He tells that a recent Ontario Court of Appeal case dealt with the enforceability of bonus plan language.

In that case, the appellant was fired from his job in 2014 and sued for wrongful dismissal after he and his former employer were not able to sort out severance.

The man had earned a base salary plus bonuses and he claimed he was entitled to the money he would have earned in his final year and during the notice period.

“The employer took the position that he was not entitled to receive the bonus because there was a written bonus plan in place,” explains Willetts.

“The employer said the language used in the document precluded [the employee] from receiving the bonus during the notice period. The plan said employees have to be ‘actively employed’ on the date of the bonus payout to be eligible.’”

The motion judge determined that the worker was entitled to receive 17 months of salary and benefits, but rejected the claim for damages for lost bonus payments because of the wording in the plan.

In fact, says Willetts, the judge “went so far as to draw a distinction between the appellant being ‘actively’ employed while still working and ‘notionally’ employed during the notice period.”

The man appealed and the Court of Appeal ruled that the motion judge had erred. It said the appellant “was entitled to compensation as part of his damages for wrongful dismissal for the loss of his bonus.”

The big lesson, says Willetts, is that employees should look very carefully at all contracts before signing.

“The employee usually has less bargaining power,” he says. “There’s a vulnerability associated with that. Make sure you get all documents reviewed and that you understand what you’re agreeing to and what entitlements you may have if your employment ends down the road.”

He says the courts try to level the playing field by not accepting “ambiguous language” from employers.

“They’re going to hold them to a strict standard and say ‘if you’re going to draft a contract that benefits you, it needs to be very clear to the employee. And if you don’t meet that standard, we’re going to refuse to enforce your employment contract or your bonus plan,’” Willetts says.

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