Ontario Court Appeal Rules on Pro-rata Bonuses:

In Andros v Colliers Macauley Nicolls Inc ( 2019 ONCA 679) the Ontario Court of Appeal considered the issue of a bonus which is payable after the expiry of the notice period but during which the employee either worked part of the year or whose notice period included part of that year .

Here is the scenario:

The bonus year is the calendar year. The employee is terminated on March 31st. The Court awards a notice period of 6 months, taking the employee to September 30th. The bonus is payable only  to employees in ” good standing ” or in ” active employment ” as of  December 31st.

This is what the Court said :

[55]      Absent a contracting out, allowing for common law damages that include compensation in lieu of a pro rata share of a bonus in circumstances where the bonus is an integral part of the compensation package is the only sensible approach. Although the notice period in this case ended a few months before the bonus would have come due, one can well imagine a scenario in which the notice period could expire on the very eve of the bonus payment date. In those circumstances, the appellant’s position would lead to the untenable result that the dismissed employee would get no part of the bonus he or she had earned through a combination of his or her labour during that calendar year and over the course of the notice period that followed.

[56]      The greater the bonus in relation to the employee’s overall compensation and the shorter the notice period, the greater the unfairness of the situation. By way of example, if the appellant is right, then an employee who is terminated in early December, but only eligible to a couple of weeks of notice, would not be eligible to seek damages for a pro rata share of his or her bonus for the eleven months of work he or she completed and the short notice period that followed. Absent clear language in the contract, I do not accept the inherent unfairness that would arise in precluding those employees terminated without cause from seeking a pro rata share of their bonuses only by virtue of the fact that the notice period ended before the bonus payment date, particularly where the bonus payment date is entirely in the discretion of the employer.

[57]      Accordingly, the question is not whether the bonus would have been “received” during the notice period, but whether it whether it was “earned” or “would have been earned” during that period. Damages may be sought as compensation for what an employee would have earned had his or her contract of employment not be breached. This reasoning is similar to Taggart where an active service prerequisite to the accrual of pension benefits did not preclude damages for lost pension benefits during the notice period after wrongful dismissal. As noted by Sharpe J.A. in Taggart, it is important to recall the legal nature of the claim. In Taggart, the legal nature of the claim was not for the benefits themselves, but for “damages as compensation for the … benefits the [employee] would have earned had the [employer] not breached the contract of employment”: at para. 16 (emphasis added). Equally, the claim here was not for the bonus itself, but for the share of the bonus that the respondent would have earned had the appellant not breached the contract of employment.

This case is very important for these reasons:

  1. It actually uses words like “fairness” in deciding what is legal.
  2. It distinguishes “earning ” a bonus by doing the underlying work and ” receiving ” the bonus on a certain later date.
  3. It reiterates that the damage calculation is based on calculating what the employee lost because of not being able to work out their notice period as opposed to suing for the payment of a specified bonus or stock option etc.
  4. It leaves employers free to try to cut off these payments if they use explicit language, without telling us what that language should look like.
  5. If a bonus is earned pro rata as long as the employee is working , then could an employee who quits half way through the year demand payment of one half of his bonus once the amount for the year is determined?