A case where the employer did everything right
Bonuses, by their nature, are discretionary. But they can also form a good chunk of an employee’s overall compensation.
In Stepaniuk v. Intuit Canada Ltd., the Alberta Provincial Court handed down a decision that bolsters an employer’s right to pay a bonus only if the worker is still an employee at the time the bonus is paid.
In this case, the employer did everything right — it had a clear policy, it communicated it to employees and it exercised its discretion in good faith.
The case: Stepaniuk v. Intuit Canada Ltd.
Ivan Stepaniuk starting working for Intuit on Aug. 1, 2001, as a business data analyst at an annual salary of $37,000.
In the summer of 2004 he started looking for another job. He found a position with Telus, which wanted him to start immediately. But Stepaniuk was able to persuade Telus to postpone his start date until Aug. 1, 2004.
He did this because he wanted to finish out the fiscal year with Intuit, which ended July 31, and earn his annual bonus.
He assumed that if he worked until the end of the fiscal year, he would be entitled to the bonus. On July 15, 2004, he notified Intuit that he would be resigning his position effective July 30. He was immediately told that he would not be entitled to the performance bonus.
Intuit’s bonus plan
When Stepaniuk was first hired, his employment agreement stated that he would be eligible for an annual growth and performance-sharing bonus. It was targeted at eight per cent of his base salary.
The bonus was not guaranteed and was only to be paid out if the company met its performance goals.
That bonus plan was replaced by a new program called the “Intuit Performance Incentive” in August 2002. The terms of the new plan were outlined in an e-mail sent to all of the company’s Canadian employees in October 2002.
Under the new plan, the bonus paid was increased in amount and a number of other changes were introduced. The details of the plan were posted on the company website and were available to all employees.
Stepaniuk was aware the program had changed in August 2002 and knew the amount to be paid was larger. He also knew the program had changed from semi-annual bonuses to a single annual bonus. He also knew that, under the new plan, bonuses were based on a combination of individual performance and company performance.
But he had no memory of having seen the e-mail and did not read the company’s website.
The company-wide e-mail contained the following statement:
“What happens if a participant terminates employment? Typically, no bonus will be paid. To be eligible for any payment under this plan, a participant must be an active employee at Intuit at the time the bonus is paid.”
That provision is a summary of a paragraph in the actual performance incentive plan. It stated that bonus awards are discretionary payments. It also said:
“A participant must be an active employee in good standing and on Intuit’s or an approved subsidiaries payroll on the day the bonus award is paid to receive any portion of the bonus payment. A participant who is not actively employed or on an approved payroll for whatever reason on the date a bonus award is paid is not entitled to a partial or pro-rata bonus award. Intuit may make exceptions at its sole discretion.”
What Intuit offered Stepaniuk
When Stepaniuk handed in his resignation, the company told him he would not be eligible for the bonus. But it did say it was prepared to pay the annual bonus if he stayed with the company until the end of August, because the bonus would be paid within that time.
But because of the commitment he made to Telus, Stepaniuk left Intuit at the end of July, after ascertaining that both the company and himself personally had met performance objectives for the year.
What the court said
The court said that, clearly, Intuit made no secret of the change in its bonus structure and it communicated the change to employees.
It said Stepaniuk did not take the trouble to read the e-mail or search the website, and never at any time asked for anything in writing in connection with the change to the bonus program.
“Even when he was arranging new employment and was consciously seeking to preserve his right to a bonus, he did not search the obvious sources or make any inquiries of (Intuit),” the court said.
It said there is a basic premise in ordinary commercial contracts that variations do not occur except by consensus meeting of all the usual contractual requirements. But it is also recognized that in employment contracts, the employer has to be able to manage its business affairs, something that may involve changing some of the terms of employment.
“Employers must have some leeway so long as the changes do not alter the fundamental primary terms of the employment such as the employee’s duties, remuneration, hours (and) place of employment,” the court said. “For obvious reasons, the employer’s right to alter employment terms to the advantage of the employee is never questioned.”
The changes made by Intuit to the bonus plan benefited the employees because it increased the amount of the bonus. Under the new plan, bonuses ranged from eight to 15 per cent of an employee’s annual salary.
“The variation did not alter to the employee’s detriment any of the main terms of employment and the employer was entitled to make the change to the employment contract without notice to or consultation with the employee,” the court said.
It said Stepaniuk had plenty of time to understand the change in the bonus structure, since it was made in August 2002 and the issue in this case arose in July 2004.
“(Stepaniuk) became aware that changes had been made to the bonus plan but did not take reasonable steps to ascertain what the new terms were,” the court said. “Any diligence, any inquiry of any reasonable kind, would have made (him) aware of the terms of the bonus plan.”
Simply put, the court confirmed that bonus awards are discretionary and that there is no entitlement to a bonus where the employee is not employed at the date the award is paid.
The court also said the power to exercise discretion carries with it the obligation to exercise it in good faith.
Bonuses a ‘substantial carrot’
The court said bonuses are not given out as gratuities out of the goodness of the heart of employers.
“They are a very substantial carrot designed to enhance the total job performance of the employee,” it said.
The method of rating the company’s performance and the individual employee’s performance created expectations, the court said.
A provision in the e-mail sent to employees about the plan said that, in the event of a lay off, up to 100 per cent of the bonus is paid, pro-rated for the time in active status. But the same e-mail also expressly stated that eligibility was dependent on active employment at the time the bonus was paid.
So, strictly speaking, Stepaniuk was not entitled to a bonus under the terms of the plan. But Intuit had the discretion to pay him a bonus, and had a duty to exercise that discretion in good faith.
Intuit prepared to stretch, but not break, terms of bonus plan
The court said Intuit was prepared to go beyond any obligation under the plan provided Stepaniuk remained until the end of August 2004.
“This reflects a judgment on the part of the mind exercising the discretion that they wished to preserve the integrity of the terms of the incentive plan but were prepared to allow (Stepaniuk) to adapt to it,” the court said. “There clearly was some discretion exercised. (Intuit) was prepared to stretch but not fracture the terms of the plan.”
It said Intuit’s provision that a bonus is paid only to employees who are continuing employees was plainly reasonable.
“(It) is intended to operate not only as a reward for past performance but as an inducement for future performance,” the court said.
The court acknowledged that an argument could be made that the company was requiring an employee to work 13 months to earn a 12 month bonus, since it paid the bonus out the month after the fiscal year ended. But it rejected that argument.
“The intent of the plan is clear. I cannot find that (Intuit) exercised the discretion under the plan in anything other than good faith and I dismiss the action,” it said.
Stepaniuk was seeking $7,000 — $5,500 for the bonus and $1,500 for legal fees. At the time he left, his annual salary was $47,500. In 2002 his bonus was 9.29 per cent ($4,412.75) and in 2003 it was 11 per cent ($5,225.) Intuit said the bonus he would have been entitled to in 2004 was 15 per cent, or $7,125.
For more information see:
• Stepaniuk v. Intuit Canada Ltd., 2005 CarswellAlta 497, 2005 ABPC 83 (Alta. Prov. Ct.)
In Stepaniuk v. Intuit Canada Ltd., the Alberta Provincial Court handed down a decision that bolsters an employer’s right to pay a bonus only if the worker is still an employee at the time the bonus is paid.
In this case, the employer did everything right — it had a clear policy, it communicated it to employees and it exercised its discretion in good faith.
The case: Stepaniuk v. Intuit Canada Ltd.
Ivan Stepaniuk starting working for Intuit on Aug. 1, 2001, as a business data analyst at an annual salary of $37,000.
In the summer of 2004 he started looking for another job. He found a position with Telus, which wanted him to start immediately. But Stepaniuk was able to persuade Telus to postpone his start date until Aug. 1, 2004.
He did this because he wanted to finish out the fiscal year with Intuit, which ended July 31, and earn his annual bonus.
He assumed that if he worked until the end of the fiscal year, he would be entitled to the bonus. On July 15, 2004, he notified Intuit that he would be resigning his position effective July 30. He was immediately told that he would not be entitled to the performance bonus.
Intuit’s bonus plan
When Stepaniuk was first hired, his employment agreement stated that he would be eligible for an annual growth and performance-sharing bonus. It was targeted at eight per cent of his base salary.
The bonus was not guaranteed and was only to be paid out if the company met its performance goals.
That bonus plan was replaced by a new program called the “Intuit Performance Incentive” in August 2002. The terms of the new plan were outlined in an e-mail sent to all of the company’s Canadian employees in October 2002.
Under the new plan, the bonus paid was increased in amount and a number of other changes were introduced. The details of the plan were posted on the company website and were available to all employees.
Stepaniuk was aware the program had changed in August 2002 and knew the amount to be paid was larger. He also knew the program had changed from semi-annual bonuses to a single annual bonus. He also knew that, under the new plan, bonuses were based on a combination of individual performance and company performance.
But he had no memory of having seen the e-mail and did not read the company’s website.
The company-wide e-mail contained the following statement:
“What happens if a participant terminates employment? Typically, no bonus will be paid. To be eligible for any payment under this plan, a participant must be an active employee at Intuit at the time the bonus is paid.”
That provision is a summary of a paragraph in the actual performance incentive plan. It stated that bonus awards are discretionary payments. It also said:
“A participant must be an active employee in good standing and on Intuit’s or an approved subsidiaries payroll on the day the bonus award is paid to receive any portion of the bonus payment. A participant who is not actively employed or on an approved payroll for whatever reason on the date a bonus award is paid is not entitled to a partial or pro-rata bonus award. Intuit may make exceptions at its sole discretion.”
What Intuit offered Stepaniuk
When Stepaniuk handed in his resignation, the company told him he would not be eligible for the bonus. But it did say it was prepared to pay the annual bonus if he stayed with the company until the end of August, because the bonus would be paid within that time.
But because of the commitment he made to Telus, Stepaniuk left Intuit at the end of July, after ascertaining that both the company and himself personally had met performance objectives for the year.
What the court said
The court said that, clearly, Intuit made no secret of the change in its bonus structure and it communicated the change to employees.
It said Stepaniuk did not take the trouble to read the e-mail or search the website, and never at any time asked for anything in writing in connection with the change to the bonus program.
“Even when he was arranging new employment and was consciously seeking to preserve his right to a bonus, he did not search the obvious sources or make any inquiries of (Intuit),” the court said.
It said there is a basic premise in ordinary commercial contracts that variations do not occur except by consensus meeting of all the usual contractual requirements. But it is also recognized that in employment contracts, the employer has to be able to manage its business affairs, something that may involve changing some of the terms of employment.
“Employers must have some leeway so long as the changes do not alter the fundamental primary terms of the employment such as the employee’s duties, remuneration, hours (and) place of employment,” the court said. “For obvious reasons, the employer’s right to alter employment terms to the advantage of the employee is never questioned.”
The changes made by Intuit to the bonus plan benefited the employees because it increased the amount of the bonus. Under the new plan, bonuses ranged from eight to 15 per cent of an employee’s annual salary.
“The variation did not alter to the employee’s detriment any of the main terms of employment and the employer was entitled to make the change to the employment contract without notice to or consultation with the employee,” the court said.
It said Stepaniuk had plenty of time to understand the change in the bonus structure, since it was made in August 2002 and the issue in this case arose in July 2004.
“(Stepaniuk) became aware that changes had been made to the bonus plan but did not take reasonable steps to ascertain what the new terms were,” the court said. “Any diligence, any inquiry of any reasonable kind, would have made (him) aware of the terms of the bonus plan.”
Simply put, the court confirmed that bonus awards are discretionary and that there is no entitlement to a bonus where the employee is not employed at the date the award is paid.
The court also said the power to exercise discretion carries with it the obligation to exercise it in good faith.
Bonuses a ‘substantial carrot’
The court said bonuses are not given out as gratuities out of the goodness of the heart of employers.
“They are a very substantial carrot designed to enhance the total job performance of the employee,” it said.
The method of rating the company’s performance and the individual employee’s performance created expectations, the court said.
A provision in the e-mail sent to employees about the plan said that, in the event of a lay off, up to 100 per cent of the bonus is paid, pro-rated for the time in active status. But the same e-mail also expressly stated that eligibility was dependent on active employment at the time the bonus was paid.
So, strictly speaking, Stepaniuk was not entitled to a bonus under the terms of the plan. But Intuit had the discretion to pay him a bonus, and had a duty to exercise that discretion in good faith.
Intuit prepared to stretch, but not break, terms of bonus plan
The court said Intuit was prepared to go beyond any obligation under the plan provided Stepaniuk remained until the end of August 2004.
“This reflects a judgment on the part of the mind exercising the discretion that they wished to preserve the integrity of the terms of the incentive plan but were prepared to allow (Stepaniuk) to adapt to it,” the court said. “There clearly was some discretion exercised. (Intuit) was prepared to stretch but not fracture the terms of the plan.”
It said Intuit’s provision that a bonus is paid only to employees who are continuing employees was plainly reasonable.
“(It) is intended to operate not only as a reward for past performance but as an inducement for future performance,” the court said.
The court acknowledged that an argument could be made that the company was requiring an employee to work 13 months to earn a 12 month bonus, since it paid the bonus out the month after the fiscal year ended. But it rejected that argument.
“The intent of the plan is clear. I cannot find that (Intuit) exercised the discretion under the plan in anything other than good faith and I dismiss the action,” it said.
Stepaniuk was seeking $7,000 — $5,500 for the bonus and $1,500 for legal fees. At the time he left, his annual salary was $47,500. In 2002 his bonus was 9.29 per cent ($4,412.75) and in 2003 it was 11 per cent ($5,225.) Intuit said the bonus he would have been entitled to in 2004 was 15 per cent, or $7,125.
For more information see:
• Stepaniuk v. Intuit Canada Ltd., 2005 CarswellAlta 497, 2005 ABPC 83 (Alta. Prov. Ct.)
