Many employees receive bonuses from their employers, whether it is a small amount for the holidays or a significant sum. In fields such as sales, that “bonus” can account for everything an employee earns above minimum wage.
This means that many employees depend on their bonus as part of their overall compensation package to cover both expected expenses, such as a Christmas bonus earmarked for presents, or unexpected ones, such as car trouble. If you are depending on a bonus, it can be devastating if you’re fired and don’t receive it.
Many employees incorrectly believe they are not entitled to their bonus. This belief is far-reaching and often due to it being viewed as “discretionary” or “not guaranteed.” Employers are partly to blame for this belief, whether passively benefiting from it or, more often, aggressively pushing it, to keep all the fruits of your hard work for themselves. This is especially true when employees are terminated.
Termination Packages Are Not Optional
If you are terminated without cause, your employer should pay you a termination package. This termination package should include your full compensation, including any bonus you would have received.
If you have found yourself terminated for cause, contact us at De Bousquet PC to speak to a lawyer today, as the Courts overturn the vast majority of terminations for cause. You may still be entitled to a termination package, including any bonuses owed.
What is a Bonus?
Generally, an employee receives three categories of compensation:
- Wages
- Discretionary Gifts/Bonuses
- Benefits
Wages are a fixed or calculated amount that you would receive no matter what. Per the Employment Standards Act, 2000, it includes monetary remuneration such as hourly wages, salary, commission, and legal allowances such as room and board. Wages do not include tips, expenses, or benefit plan contributions. They also do not include discretionary gifts or bonuses. However, if the gifts or bonuses are related to your hours, production, or efficiency, then they are wages.
Discretionary gifts and bonuses are amounts paid to an employee that are not required to be paid and are paid solely because the employer wants to.
Benefits include everything else an employee receives from their employment. Health Insurance, Pension Plans, company cars, phone allowances, and employee discounts all fall into this category.
When it comes time to pay termination packages, however, these definitions are unfortunately almost always completely ignored by most employers.
A common reason for ignoring these definitions is that employers claim that “Performance Plans” which reward bonuses are entirely discretionary and not guaranteed. In contracts or employee handbooks, these “discretionary” bonuses are often followed by a detailed table that shows how the bonus is directly calculated based on hours, production, and efficiency. As stated above, but worth repeating, if the gifts or bonuses are related to your hours, production, or efficiency, then they are wages and not discretionary!
Damages In Lieu of Reasonable Notice
The purpose of damages in lieu of reasonable notice is to put the terminated employee in the same position as if they had continued to work for the entire notice period. Your employer is bound to the terms of your employment when calculating these damages, and it is illegal for your employer to change any of the terms of your employment after providing notice of termination.
This is why if you are owed damages for employee discounts and the value of health insurance over the notice period.
An “Active” Employee Isn’t Out for a Jog
Most employees are told that they are not owed a bonus for a variety of reasons.
One common line employers give (and ignorantly, sometimes genuinely believe) is that because their plan specifies that you have to be an “active” employee to receive your bonus, you will not receive yours because they view you as not being “active.”
The thing is, in the eyes of the Court, you are still an “active” employee throughout your notice period, even if you were given damages in lieu of reasonable notice.
“Damages” Are Not the Default
Most people who are terminated are given damages in lieu of reasonable notice, but this is not the “default.” The default is that if you are terminated, you are given reasonable notice as to your last day of work and continue to work up until that day. Considering you would “actively” work up until the termination date, you would receive all wages, non-discretionary bonuses, and benefits during this period.
While this is the default, most employers don’t want someone that they have terminated to stick around and keep working.
Most employers instead give damages in lieu of reasonable notice, which enables a clean break between the employer and employee and ensures that the employee is paid what they would have been paid during that notice period – including non-discretionary bonuses.
Bonus plans that try to avoid paying bonuses to terminated employees will fail when challenged because your contract is not considered “terminated” until the reasonable notice period has expired.
No Such Thing as Near Cause
Another common line that employees are fed when they are terminated is that they are not entitled to a bonus because of poor job performance.
If you are terminated without cause, your employer may try and argue this, but they cannot deny you a bonus by citing your job performance. This is because your job performance, as stated by them in terminating you without cause, is irrelevant.
If an employer wants to claim that they denied you your bonus because of performance issues, they need to explicitly tell you that and include their reasoning in your termination letter.
Considering there is no such thing as near cause in Ontario, an employer is going to be facing an uphill battle trying (often egregiously) to claim that you aren’t owed your bonus due to job performance issues when they terminated you without cause.
Do You Pass the Test?
The Supreme Court of Canada in Matthews v. Ocean Nutrition Canada Ltd. distilled the above into the following test for determining whether an employee who has been wrongfully terminated is entitled to their bonus.
- Would the employee would have been entitled to the bonus during the notice period?
- If so, is there is something in the bonus plan that clearly, unambiguously, and legally would specifically remove the employee’s entitlement in this exact situation?
If you have been terminated and it is your employer’s opinion that within your bonus plan there is some clear, unambiguous, legal reason you should not receive it, chances are that they are incorrect.
If this is happening to you, please contact us at De Bousquet PC for an actual legal opinion before signing anything. You should never simply rely on what your employer (who has just terminated you) is telling you. You may find that your employer grossly misinterpreted their obligations.
Consequences of the Bonus Test
One recent case by the Ontario Court of Appeal, Nader v. University Health Network, shows how the Courts will evaluate bonuses for employees terminated with proper notice.
Mr. Nader’s Employment Agreement outlined that his compensation would include “eligibility to receive an annual performance-based bonus of up to 25% of his annual base salary,” which was approximately $90,000.00.
The Ontario Court of Appeal awarded Mr. Nader his bonus, due to the following factors:
- Mr. Nader’s bonus was a “substantial and integral” part of his overall compensation;
- The Court recognized evidence that Mr. Nader had been given a 25% bonus in both 2018 and 2019;
- The employer had given Mr. Nader a 25% bonus based on the months worked that year; and
- There was no evidence as to why the rest of 2020 and 2021 would have been different.
What About Discretionary Bonuses?
Discretionary bonuses are not included in compensation or benefits and your employer may try to deny your bonus upon termination by arguing that it is a discretionary bonus.
If this has happened to you, don’t be discouraged as this claim will likely fail for a number of reasons, including:
- A discretionary bonus can be found to be integral to the compensation if it is paid consistently.
- Discretion must be exercised fairly and reasonably.
If, for example, an employee gets approximately a $5,000.00 bonus every year without fail that their employer claims have been discretionary bonuses, it becomes difficult for them to claim they were exercising any form of discretion.
Furthermore, as set out by the Ontario Court of Appeal in Bowen v. JC Clark Ltd, an employer cannot decide to only award a bonus to non-terminated employees, especially when a large amount of the bonus funds came from the efforts of the terminated employees.
If you have spent the last year creating “jaw-dropping” successes for your employer, like the terminated employees in Bowen v. JC Clark Ltd, losing your bonus can be absolutely devastating.
At De Bousquet PC, we understand how critical bonuses can be to all employees. Our lawyers are here to make sure you get what you are owed for your hard work. As a firm that does numerous cases on contingency, we understand how critical getting paid for your hard work is. Contact us now.