Active Employment Clause Fails to Avoid Bonus over the Notice Period.

In Pacquette v TeraGo Networks ( 2016 ONCA 618 ) the Ontario Court of Appeal reviewed a decision in which Perell J. had denied the Plaintiff his bonus over the 17 month notice period because there was a provision in the bonus plan which required the employee to be ” actively employed” at the time of payout in order to receive his bonus.

The Court held that there was a two step process in calculating damages in a wrongful dismissal action:

First, because it was found that the bonus was an intergral part of the Plaintiff’s compensation plan, his damages are to be calculated on the basis of what they would have been had he been permitted to work out his notice period.

Secondly, the Court is to then look at the language of the relevant plan to see if there is anything which would disentitle the Plaintiff to the bonus over the notice period

To quote the judgement:

30] The first step is to consider the appellant’s common law rights. In circumstances where, as here, there was a finding that the bonus was an integral part of the terminated employee’s compensation, Paquette would have been eligible to receive a bonus in February of 2015 and 2016, had he continued to be employed during the 17 month notice period.

[31] The second step is to determine whether there is something in the bonus plan that would specifically remove the appellant’s common law entitlement. The question is not whether the contract or plan is ambiguous, but whether the wording of the plan unambiguously alters or removes the appellant’s common law rights: Taggart, at paras. 12, 19-22.

The Court went on to find that the term “active employment” did not have the effect of limiting the bonus entitlement over the notice period.

A term that requires active employment when the bonus is paid, without more, is not sufficient to deprive an employee terminated without reasonable notice of a claim for compensation for the bonus he or she would have received during the notice period, as part of his or her wrongful dismissal damages.

How then can an employer effectively deprive an employee of their bonus over the notice period? What language will be sufficient?

The Court had this to say about Kieran v. Ingram Micro Inc. (2004), 33 C.C.E.L. (3d) 157 (Ont. C.A.),

[38] Kieran is a stock option case. The issue was whether Mr. Kieran’s time for exercising stock options upon the termination of his employment was extended by the common law notice period where he had been dismissed without cause. The stock option plans provided that he had 60 days from the termination of his employment for any reason other than death, disability or retirement to exercise any rights then vested. “Termination of employment” was defined as the date the employee “ceases to perform services for” the employer “without regard to whether the employee continues thereafter to receive any compensatory payments therefrom or is paid salary thereby in lieu of notice of termination.”

[39] Lang J.A. explained, at para. 56, that under Ontario law, “Mr. Kieran would be entitled to damages for the loss of the plans, as they formed part of his compensation, absent contractual terms to the contrary. In the presence of contractual terms, those terms govern”. She then concluded that the plans were unambiguous as they “specifically provided that Mr. Kieran’s employment terminated on the date he ceased to perform services, without regard to whether he continued to receive compensatory payments or salary in lieu of notice.” Accordingly, Mr. Kieran’s right to exercise the stock options was not extended by the period of reasonable notice. He was not entitled to damages for the stock options.

Therefore this case, although interesting on its facts, simply stands for the proposition that the words ” actively employed ” are ineffective in denying a plaintiff a payment that would have occurred over the notice period, however smart employers will probably be changing their plans immediately to include Kierans’ type language rather than the active employment clause.


393 thoughts on “Active Employment Clause Fails to Avoid Bonus over the Notice Period.”

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