As many employers know, if one’s employment is terminated without cause and the employee is provided pay in lieu of reasonable notice, the employee is nonetheless entitled to his or her entire compensation package during the reasonable notice period. This includes salary, benefits, bonus and any other aspects of the compensation package. However, a new decision by the Ontario Superior Court of Justice confirms that employers may contract out of paying an employee who is provided pay in lieu of notice a bonus to which he or she would have become entitled during the notice period.
In the recent decision, Paquette v TeraGo Networks Inc., 2015 the employee (Mr. Paquette) was dismissed from his employment at TeraGo Networks Inc. without cause in November 2014 due to poor economic conditions in the oil industry. Mr. Paquette was offered 30 weeks’ pay in lieu of notice (the “pay in lieu period”). The Superior Court of Justice enforced a clause in an employee’s bonus provision that states an employee must be ‘actively employed’ (and not being paid in lieu of reasonable notice) on the day of the bonus payout.
The payout for the TeraGo Networks Inc. annual bonus program, in which Mr. Paquette participated during his employment, fell within the 30-week pay in lieu period. The employer did not include the bonus payout in Mr. Paquette’s pay in lieu of notice, citing a clause in Mr. Paquette’s bonus provision stating that he was required to be ‘actively employed’ with TeraGo Networks Inc. in order to receive the payout. The employer took the position that an employee is not ‘actively employed’ during his or her pay in lieu period.
Counsel for Mr. Paquette argued that, although the payout date fell within the pay in lieu period, he was still technically employed with TeraGo Networks Inc. at the time of the payout and was therefore entitled to the bonus. The Superior Court of Justice disagreed, ruling that:
Although the Bonus Program at TeraGo was an integral part of Mr. Paquette’s employment, there is no ambiguity in the contract terms of the Bonus Program. Mr. Paquette may be notionally an employee during the reasonable notice period; however, he will not be an “active employee” and, therefore, he does not qualify for a bonus.
This decision provides a welcome clarification to employers, as it reaffirms that employers can contract out of their obligation to pay bonuses to employees who are receiving pay in lieu of notice at the time of the bonus payout. However, in order to realize the benefits of this decision, it is recommended that employers seek legal advice to ensure that their bonus provisions are drafted in a manner that the courts would deem enforceable.
This blog is provided as information and a summary of workplace legal issues.
This information is not intended as legal advice.