In Fraser v Canerector ( 2015 ONSC 2138) Dunphy J. denied a bonus payment in the year of termination and over the notice period to a three year employee who had received substantial bonuses in all of his past years ( $50,000 in year one, then $75,000 and in his last full year $175,000). He did this because:
1) There was no formula in determining the bonus rather it was based on the owners determination of the employees’ contributions and the company performance.
2) In the past other eligible employees had received nil bonuses, although not the plaintiff. Furthermore the bonuses were confidential so the Plaintiff would have no information about what other executives did or did not get .
3) There was no evidence of any contribution of the Plaintiff in his final year that showed his contribution. He was fired mid year.
4) They fired him because he was lousy at his job, although it did not amount to cause. Although he had performed well in his previous position, once he got a new position and a new boss ( the owners’ daughter) he apparently was a disaster.
5) Even if he had worked out his notice period ( which the judge determined was only 4.5 months for a 46 year old executive with 34 months service) he still would not have been employed at the end of the year, therefore no bonus would have been payable, even though such a rule had never been articulated by the employer.
6) As he had done well in all the other years, and thus benefitted by the disceretionary nature of the bonus, so should he not complain when the exercise of the discretion was not to his benefit.
7) Any attempt to assess the bonus would be arbitrary so the Court should not even try to do so.
This approach to bonus entitlement over the notice period is at serious odds with the case law, where mere difficulty in determining the bonus does not lead to no award of bonus. The bulk of the cases involve either a backward looking average ( usually the last 2 to 3 years ) or a determination of what the bonus would have been over the notice period. Dunphy J. seems to view a discretionary bonus as one that is whatever the employer decides it to be, even when the existance of this bonus plan was part of the original compensation terms.
The root of the judges’ problem in this case seems to flow from his thought on how this would affect further cases:
[53] The plaintiff argues that bonus was an integral part of the remuneration package and submits that, even absent a formula, there must be an objective assessment of it. While participation in the plan itself was clearly an entitlement under Mr. Fraser’s employment contract, the plan itself was fundamentally and by its nature discretionary and thus subjective. The court is in no position to assess performance of an individual executive still less to compare his performance to others. The court has no basis to assess the merits of acquisitions originated by the plaintiff, the skill (or lack thereof) used by the plaintiff in managing them, the results obtained from divisions under his supervision and the degree to which he has managed them well or poorly.
[54] If the bonus plan were to be treated as objective for purposes of assessing damages in wrongful dismissal cases, then it must logically be considered objective for ALL purposes and not merely end-of-employment questions. Merely stating the proposition is sufficient to reject it – the court is in no position to sit as a court of appeal weighing allegedly unfair bonus calculations for active employees or to hear constructive dismissal suits based on allegations that a particular decision regarding bonus in a year was alleged to be unfair.( emphasis added)
In fact, given the new obligation of honest dealing in contractual relations as set out by the Supreme Court of Canada, I would argue that there is a contractual obligation for an Employer to assess a bonus entitlement in good faith and thus it is entirely proper for a Court to review an Employer’s decision to not award a bonus or to award an unfair bonus, even if the employee is actively employed at the time.
Bonuses are no longer viewed as gifts from a grateful master to a loyal servant at Christmas time. Rather they are a vital part of many employees’ compensation plan and should be entitled to the same contractual protection normally given to other contractual entitelements.
In this case there were objective criteria in determining the size of the bonus, namely the individual performance of the employee and the overall performance of the Employer. There was no indication in the judgement that the Employer had any financial problems in the year in question. The only comments about the Plaintiffs’ performance was that they fired him because they thought that he was not a good enough performer in his brand new role . There is no evidence of any goals set for him, any performance review procedure or any criteria at all in deciding how to evaluate his individual performance. There must have been criteria, because in the past he received substantial bonuses. Was this whole process just based on a whim?
Surely when one signs up for a new job with a bonus plan, one can reasonably expect that it will be administered in a responsible and consistent basis, not based on the current whim of the owner and his daughter.
Therefore if a employer chooses to have a bonus plan that is entirely discretionary without any criteria whatsoever, it should have to inform the employee as follows:
“In addition to your wage, we may or may not pay you a bonus. We are not telling you what you need to do in order to get a bonus. If we decide to pay you a bonus, the amount will be entirely up to us and you will have no input into that decision or have any clue how we arrived at the number. If we decide to terminate your employment, you will not get any bonus whatsoever, no matter how hard you worked or how much you achieved. ”
The Plaintiff filed an appeal of this decision. On October 4, 2016 the Divisional Court dismissed the appeal . ( 2016 ONSC 6071).
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