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No Bonus Entitlement – “Active Employment” Requirement did not Violate ESA

The Ontario Court of Appeal recently denied entitlement to bonus payout to an employee who quit his job. The Court found that the language of the bonus plan, requiring “active employment” as a condition to receive a payout, did not violate the Employment Standards Act.

The Case

The employee in Bois v. MD Physician Services Inc. worked for the company for approximately 14 years before resigning his employment in 2011. Under the company’s Variable Incentive Plan (“VIP”), a bonus awarded for a year was payable in equal installments over the three years following the calendar year for which the bonus was awarded. Installment payouts would be made in February or March of each year. The employee resigned before the pay-out dates for the final installment of his 2009 bonus and two installments of his 2010 bonus.

The language of the VIP changed from time to time, but the relevant language from the 2007 plan stated as follows:

In the event a Participant’s continuous Active Employment terminates, either voluntarily or involuntarily and whether for cause or not for cause, the Participant will immediately forfeit any entitlement to any payments under this plan whether attributable to prior years or to the current year.

The employee had also agreed to and signed a letter in 2010 further emphasizing the active employment requirement. The company declined to pay-out the employee’s bonus on the basis that he was not actively employed on the relevant dates.

The Decision

The Court of Appeal found that the language of the VIP, combined with the 2010 letter, was clear and unambiguous in disentitling the employee to the bonus payouts. The Court further upheld the motion judge’s ruling that the language did not violate ss. 11(5) and 13 of the ESA.

If an employee’s employment ends, s. 11 of the ESA requires an employer to pay any wages to which the employee is entitled to the employee seven days after the employment ends, or on the employee’s next scheduled payday, whichever is later. Section 13 prohibits employers from “withhold wages payable to an employee”.

The Court found that while the three installments at issue would have constituted wages payable to the employee upon each of the future payout dates, they were not “wages to which the appellant [was] entitled” on the date he resigned and his employment ended. The ESA does not have the effect of accelerating the employer’s obligation to pay out future installments after an employee has left his employment.

The Takeaway

As the Court of Appeal emphasized in this case, it is open to the parties to agree how and when any bonus is declared, earned, accrued and will be payable. However, as we have noted in the past, limiting an employee’s entitlement to receive non-discretionary bonus payments after termination requires the use of clear, unambiguous language, and can be difficult to do in practice.

This case is different from other recent decisions from the Ontario Court of Appeal because it dealt with an employee who resigned from his employment. The courts have found that employees fired without cause are entitled to bonus payments which would have been payable during the reasonable notice period, despite bonus plan language requiring “active employment”. As such, it is prudent to consult with an employment lawyer when dealing with potential bonus entitlement for a departed employee.

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