A recent decision, the Court of Appeal, Mady Development Corp. v. Rossetto, clarified an employee’s entitlement to bonuses who has breached their fiduciary duties to their employer.
The employee was an executive with the defendant company. His employment was terminated for diverting labour and materials and using company funds to renovate his house. The company denied him his bonus on the basis that he had breached his fiduciary duty to the company.
An arbitrator had ruled that the plaintiff has entitled to his bonus (the parties had agreed to resolve the dispute by private arbitration). This was overturned by the Superior Court. The Court of Appeal held that the employee was entitled to his bonus and restored the arbitral decision.
The remedies for breach of fiduciary duty are discretionary and guided by the goals of restitution and deterrence. An employee is not necessarily disentitled to a bonus because of wrongdoing. The determination is fact-specific and will depend on the particular case.
In this case, the employee’s bonus was a significant part of his overall compensation and was non-discretionary. Denying him the bonus in this scenario amounted to denying him wages owed that had been earned, which he was entitled to regardless of his honesty as an employee.
Although there may be situations where an employee in a fiduciary relationship is not entitled to a bonus due to their breach of duty, if the bonus forms an integral part of the employee’s compensation, a court will likely find entitlement. Employers should analyze the nature of the bonus carefully before making determinations as to whether the employee has a right to the bonus.