Employees Are Entitled To Bonus Payment After Termination

September 7, 2016

By Brad Smith

The employment relationship is governed by the law of contract. But the common law also implies certain terms.

One implied term is that if an employee is terminated without cause, the employee shall receive reasonable notice of termination. If the employer does not provide the notice, the termination is a breach of contract. This entitles an employee to compensation. The compensation shall put the employee in the same position as if there was no breach by the employer and the employee worked the entire notice period. The compensation includes all of the remuneration and benefits the employee would have earned during the notice period.

The employee and employer can contract out of the common law. The contract language has to be clear if an employer wants to restrict or take away an employee’s common law rights. The Ontario Court of Appeal made this clear in 2 recent cases involving the payment of a bonus during the notice period.

In Lin v. Ontario Teachers’ Pension Plan, 2016 ONCA 619 and Paquette v. TeraGo Networks Inc., 2016 ONCA 618 the court stated more than “active employment” is required to disentitle an employee from payment of bonus during the notice period. The court confirmed the principle that a terminated employee’s involuntary inability to comply with a condition of a bonus plan requiring continued employment ought not to be justification in declining the award of the bonus as part of his wrongful dismissal damages. The Court stated:

“The wording does not unambiguously alter or remove the respondent’s common law right to damages, which include compensation for the bonuses he would have received while employed and during the period of reasonable notice. A provision that no bonus is payable where employment is terminated by the employer prior to the payout of the bonus is, in effect, the same as a requirement of “active employment” at the date of bonus payout. Without more, such wording is insufficient to deprive a terminated employee of the bonus he or she would have earned during the period of reasonable notice, as a component of damages for wrongful dismissal.”

The take away for employers is they have to review very carefully the language of their employment contracts if the intention is to restrict an employee’s common law rights.