The Ontario Court of Appeal recently released a decision on how damages ought to be assessed with respect to an employee’s bonus and benefits over the reasonable notice period.
The Decision
In Singer v. Nordstrong Equipment Limited, 2018 ONCA 364, an employee commenced a wrongful dismissal action against his former employer seeking his lost salary, benefits and bonus over his reasonable notice period, as well as his unpaid bonus for the 2016 fiscal year. The employee was terminated without cause in December 2016. He was 53 years old at the time, had 11 years’ service, and held the position of President and General Manager. At the time of termination, he earned a base salary of $180,000, an annual bonus, matching 4% contribution to a Registered Pension Plan, a car allowance, paid cell phone, and benefits.
The employee brought a motion for summary judgment.
a) Summary Judgment
The motion judge awarded the employee his 2016 bonus and pay in lieu of 17 months’ reasonable notice.
What the motion judge did not award the employee was his bonus over the notice period. The purpose of the company’s bonus plan was to maximize efforts to generate profits, and it would not have been within the employee’s reasonable expectation to be able to earn a bonus during his notice period while he searched for alternative comparable employment.
The motion judge also did not award any amount for the loss of the employee’s benefits over the notice period. The court reasoned that the employee failed to prove he suffered a loss; specifically, he did not produce any evidence that he replaced the benefits he would have enjoyed over his notice period.
The employee appealed the dismissal of his claims for his bonus and benefits over the reasonable notice period.
b) Court of Appeal
The Court of Appeal allowed the employee’s appeal.
On the issue of his benefits, the court found that the motion judge had cited no authority for the approach that the employee must prove he suffered a loss to make out a claim for benefits over the notice period. To the contrary, the law in Ontario was settled in the case of Davidson v. Allelix Inc., 1991 CanLII 7091 (ON CA) (“Davidson”), where the Court of Appeal held that a wrongfully dismissed employee may claim the pecuniary value of lost benefits flowing from termination. Davidson specifically rejected the principle that the assessment of damages for lost benefits is based on what benefits would have cost the employee throughout the notice period. Therefore, the motion judge committed an error of law in reaching his decision.
The Court of Appeal also found that the motion judge erred in law by not awarding the employee his bonus over the notice period. Specifically, the motion judge failed to apply the two-part test, set out in Paquette v. TeraGo Networks Inc., 2016 ONCA 618 (“Paquette”) to determine whether an employee is entitled to a bonus over the notice period. The Paquette test involves the following two steps: 1) to determine whether bonus is an integral part of the employee’s compensation package, and 2) if so, to determine whether there is language in the bonus plan that unambiguously alters or removes the employee’s entitlement to a bonus over the notice period. Had the motion judge applied this test, it would have found that bonus was an integral part of the employee’s compensation and there was nothing in the company’s bonus plan that limited his entitlement to a bonus over the notice period.
Significance of Decision
This decision confirms how damages will be assessed with respect to an employee’s bonus upon termination as well as bonus and benefits over the notice period.
On the issue of an employee’s bonus, the test set out in Paquette continues to govern the determination of whether an employee is entitled to a bonus over the notice period.
On the issue of benefits over the notice period, the decision confirms that the assessment of damages is not based on the employee’s replacement costs of those benefits over the notice period, but rather on the pecuniary value of lost benefits flowing from termination.
If you are looking for advice on your entitlements upon termination, contact an employment lawyer at Turnpenney Milne LLP today.