limited bonus entitlement upon termination. The clause said
…Any bonus which may be paid is entirely at the discretion
of the Company, does not accrue, and is only
earned and payable on the date that it is provided to
you by the Company. For example, if your employment
is terminated, with or without cause, on the
day before the day on which a bonus would otherwise
have been paid, you hereby waive any claim to that
bonus or any portion thereof. In the event that your
employment is terminated without cause, and a bonus
would ordinarily be paid after the expiration of the
statutory notice period, you hereby waive any claim
to that bonus or any portion thereof. You also hereby
waive any claim to constructive dismissal based on the
fact that a bonus is not paid, is less than was previously
paid, or is less than is paid to another employee. …
The court found that the clause and its consequences was
clear and unambiguous, held that it was enforceable and concluded
that the employee in that case was not entitled to a
bonus over the reasonable notice period.
As a result of these decisions, the enforceability of bonus forfeiture
provisions in Ontario has become more complex. Here
are the three main points that employers can take away from
1. If an employee regularly receives a bonus, it will usually be
considered an integral part of his or her compensation. If
that employee is terminated without cause, he or she will
ordinarily be entitled to damages in lieu of a bonus that
would have been earned over the notice period, unless a
contract clearly and unambiguously provides otherwise.
2. An employer that attempts to rely on a bonus forfeiture
provision to restrict a terminated employee’s bonus
entitlement needs to ensure that there is no ambiguity or
uncertainty in the wording of the provision. If the bonus
plan contains a requirement of “active employment” or
states that entitlement ends upon termination, without any
further limitation, the language should be revised.
3. Any attempt to change a bonus plan or employment contract
to restrict a terminated employee’s bonus entitlement needs
to be made with fresh consideration. However, the employee
must also accept the changes. An employee’s rejection of any
changes, even with consideration, will render the changes
unenforceable and ineffective. ■
Hendrik Nieuwland is a partner at the law firm Shields O’Donnell
Mackillop LLP in Toronto.
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