Court forced to clarify unclear bonus provision in employment contract

Worker awarded nearly $30,000

Lipari v. Ecolosite Inc., 2005 CarswellOnt 1023 (Ont. S.C.J.).

An Ontario Superior Court judge had to determine what bonus a salesman was entitled to because the bonus provision in his contract was unclear.

Michael Lipari was hired by Ecolosite Inc. in 1999 to boost sales for its environmental disposal business. He had worked for nine years for a company in a similar field, earning about $100,000 a year.

Prior to joining Ecolosite, Lipari said he wanted a salary of $60,000 a year, a signing bonus of $5,000, shares in the company and a performance bonus. He said he made it clear the bonus was to be calculated on total revenue and not the annual profit of the company.

Lipari negotiated the employment agreement with Udo Seltner, one of two principal shareholders of the company. The bonus clause read: “Bonus based on income and profit of corporation,” followed by a chart listing the bonus rate of 0.75 per cent for up to $1.5 million in gross income, one per cent for $1.5 million to $2.25 million, and 1.5 per cent for more than $2.25 million.

Lipari claimed when he asked about his bonus in 2000 and 2001 he was told the company did not have the money and he was asked to be patient. In April 2002 Lipari again asked for his bonus, which he calculated at $53,470. Seltner testified he, “almost fell to the floor,” when he heard that as the company calculated the bonus at $1,056.

Lipari said he had been emphatic his bonus was to be calculated on the basis of total sales rather than the company’s profit. He said he was looking forward to being compensated for his productivity, having almost doubled sales to $2.6 million in the first year at Ecolosite.

Seltner claimed he had been told of Lipari’s wish to be paid on the basis of total revenue, but said he never spoke about it to Lipari and would never have agreed to his employment on that basis.

The court found there had been no meeting of the minds on the bonus and there was thus no agreement. It noted Lipari had joined Ecolosite at substantially less remuneration than with his previous company and it was clearly contemplated by both parties that his annual salary would be supplemented by his bonus. It was thus for the court to determine what that would be.

The court did not award a bonus that automatically set Lipari’s income at the level of his former employment. Part of his motivation for joining Ecolosite was to earn equity in a growing business, which entailed some risk and uncertainty. The court awarded him $10,000 per year for the 35 months of his employment — or $29,166.

It rejected Lipari’s claim for damages based on constructive wrongful dismissal. There was no breach of a fundamental term of his employment contract, and since he had earned about $77,500 in his first full year after working at Ecolosite he had not incurred any damages, ruled the court.

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