Case looks at bonuses for employees — and former employees
By Jeffrey R. Smith
It’s nice to get a bonus in recognition of a job well done. Not to mention the extra funds it puts in your pocket. But should you still get it if you’ve been dismissed? Depending on the circumstances, the answer could be “yes.”
There have been many cases out there where the payment of bonuses to dismissed employees was in dispute. Many would argue if the bonus is the result of work in which the employee participated before she was let go, then the employee should be entitled to receive it. This argument has merit, but doesn’t always work.
It’s also been argued that where a bonus is given pretty much every year — or multiple times a year — as past practice, it becomes a part of the employee’s regular compensation. And often courts have supported that argument, awarding damages for regular bonuses in addition to pay and benefits for wrongful dismissal.
Employers can include provisions in their employment contracts that stipulate that in order for employees to be eligible to receive bonuses, they must be actively employed at the time the bonus is approved and given out. Therefore, if the employee is dismissed before bonus time, she wouldn’t get it as part of her severance. Simple, right?
Well, not so much. The definition of “actively employed” might not be so clear if it isn’t spelled out in such a provision. An Ontario employer recently dismissed a long-term employee who had a provision limiting bonus payments to those who were actively employed. A dismissed employee sued for wrongful dismissal damages that included pay, benefits and a bonus that was paid out shortly after the dismissal.
The trial judge found the employee was entitled to 17 months’ notice and awarded that much in pay and benefits. However, the judge didn’t include the bonus because the employee wasn’t actively employed with the employer.
However, an appeal court disagreed and included the bonus as part of the wrongful dismissal damages. The court found that had the employer provided proper notice of dismissal — 17 months — the employee would have still been actively employed when the bonus was paid and therefore eligible for it.
It can be helpful for an employer to manage the costs of dismissal through provision such as bonus limitation. But like any contractual provision, the language had better be clear, or the costs may not be managed at all. And a bonus for employees could become a bonus for former employees as well.
