In March 2017, Susan Crawford of CCPartners successfully obtained a decision from the Ontario Court of Appeal
In March 2017, Susan Crawford of CCPartners successfully obtained a decision from the Ontario Court of Appeal in Kielb v. National Money Mart Company which upheld a clearly worded bonus limitation clause. In that case, the former employee was precluded from receiving a bonus because he was not employed on the date of bonus payment. The Ontario Court of Appeal supported this ruling in its recent decision in Bois v. MD Physician Services Inc.
The employee in Bois v. MD Physician Services Inc., appealed the lower court’s determination that the his entitlement to bonus payment was extinguished by contractual language specifying that bonus installments were payable only to employees who were active employees at the time of the pay-out dates. The Ontario Court of Appeal found no error in the lower court’s interpretation.
The employee was employed with the employer from August 1997 until his resignation in October 2011. As part of his compensation, the employee was eligible for bonuses that were paid as part of a Variable Incentive Plan (“VIP”). Under this plan, a bonus awarded for a year was payable in equal installments over the three years following the calendar year for which the bonus was awarded. Installments payments were made in February or March of each year.
The first VIP was put in place in 2007 and contained the following provision:
In the event a Participant’s continuous Active Employment terminates, either voluntarily or involuntarily and whether for cause or not for cause, the Participant will immediately forfeit any entitlement to any payments under this plan whether attributable to prior years or to the current year.
The second VIP that replaced the 2007 VIP contained a similar provision that stated, “Any employee who has left the organization or has given notice to leave the organization on or before the incentive payment date will not be eligible to receive a payment”.
The employee resigned in October 2011, which was before the pay-out for the final installment of his 2009 bonus and two installments of his 2010 bonus. These future installments totaled $114,916.79.
The employee contended on appeal that subsection 11(5) of the Employment Standards Act, 2000 (the “ESA”) operates to accelerate the employer’s obligation to pay-out future installments, notwithstanding language in an incentive plan requiring the employee to be actively employed at the date of any future pay-outs. Further, the employee also argued that the employer’s failure to pay-out his bonuses were in contravention of subsection 13(1) of the ESA.
Subsection 11(5) of the ESA states that “if an employee’s employment ends, the employer shall pay any wages to which the employee is entitled to the employee not later than the later of, (a) seven days after the employment ends; and (b) the day that would have been the employee’s next pay day.” Subsection 13(1) provides that “an employer shall not withhold wages payable to an employee, make a deduction from an employee’s wages or cause the employee to return his or her wages to the employer unless authorized to do so under this section”.
The Ontario Court of Appeal dismissed the employee’s arguments and agreed with the lower court’s interpretation of the employee’s VIP. The Ontario Court of Appeal agreed that the VIP required an employee to be actively employed with the employer on the date of a bonus installment pay-out in order to receive the installment. If an employee resigned before an incentive payment date, he would not be eligible to receive a payment. Further, it was also held that the payment terms of the VIP did not amount to “withholding” wages within the meaning of subsection 13(1) of the Act.
The Ontario Court of Appeal relied on Kielb v. National Money Mart Company, and affirmed that it was open to the parties to agree on how and when any bonus was declared, earned, accrued and would be payable.
While this decision reassures employers on the enforceability of a bonus limitations clauses, it is important that such bonus limitation and termination clauses are clearly worded and are in compliance with the ESA. Employers can limit their liability upon termination of an employee with a clear and properly worded employment agreement. The CCP team has extensive experience assisting employers in the drafting of employment agreement and bonus/incentive compensation plans. Click here for a list of team members who can provide legal support with the drafting and review of employment-related contracts.
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