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Bonuses and misconduct

Are employees entitled to bonuses earned while performing serious misconduct that gets them fired?

By Jeffrey R. Smith

A fundamental term of the employment relationship is the employee gets paid for the work she performs for the benefit of the employer. The employer can’t take that away.

For example, even if the employee owes money to the employer for some reason, the employer can’t take that money from her paycheque without express written consent. If work is performed, the employee must get paid.

But what if the employee is doing things she shouldn’t be doing while performing work? Things that are actually harming the employer? The employee is still earning regular pay, but what about bonuses?

An interesting situation came about a few years ago when an executive with an Ontario developer diverted labour and materials, as well as financial resources, from the company in order to do renovations on his home. The total value of the resources he diverted added up to more than $500,000, including losses suffered from the delay of a project caused by the diversion. The company didn’t find out about it until one year later, upon which it terminated his employment.

Before the company discovered the executive’s misconduct, he continued to work and earned not only his regular salary, but also an annual bonus equal to 30 per cent of the company’s net profit. After the executive was fired, a court ordered him to repay the company for its losses. However, after some appeals, he was also awarded his bonus for the time between his misconduct and his firing, which was more than $364,000.

A court found the bonus was awarded every year and was part of the executive’s employment contract. Therefore, it was a part of his regular compensation. Even during the time of his theft of company resources, he was performing work to the company’s benefit and earning his regular pay, including the bonus. In addition, since the executive had already been ordered to repay the company for its losses, the company was already receiving reparations and could not withhold the bonus, the court said.

This case raises an interesting question when it comes to bonuses: How are they earned?

The executive’s employment contract tied the size of the bonus to how well the company did, but his misconduct affected the company’s bottom line. Though he had to repay the company for its losses, did he really earn the bonus if he was secretly stealing from the company? Had the company been aware of the misconduct when it happened, it would have fired the executive immediately and he wouldn’t have earned the bonus for the subsequent year. Does it make sense for the company to get $500,000 from him for his misconduct and then have to turn around and give him two-thirds of it back?

Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective. He can be reached at jeffrey.r.smith@thomsonreuters.com or visit www.employmentlawtoday.com for more information.

© Copyright Canadian HR Reporter, Thomson Reuters Canada Limited. All rights reserved.

Jeffrey R. Smith

Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective.
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3 Comments
  • Bonuses and misconduct
    Thursday, June 7, 2012 10:32:00 AM by Jeffrey R. Smith
    The $500,000 was the value of the resources he misappropriated plus the delay in a project caused by the misappropriation. There was no calculation of how much this misappropriation affected the company's overall profit for the year.

    The question is, regardless of how much his bonus was affected by any change in the profit level, was he doing what he was supposed to be doing to earn the bonus? The direct value of the company's losses from the exec's misconduct were remedied by the award, but what about any potential additional business had he been doing his job properly to the benefit (instead of to the detriment) of the company? What is a bonus for if someone who is doing something to hurt the company rather than help it is entitled to it?