Employee bonuses often still count through the termination notice period
It’s nice to get recognized for a job well done. There’s little doubt that a good rewards and recognition strategy can be a big factor in an organization’s ability to attract and retain talent. Naturally, one of the most popular forms of rewards and motivation comes in the form of a bonus. After all, money talks.
However, while bonuses can be a great motivator, they can make things a little trickier when an employee is dismissed without cause. Employers are required to provide notice of termination or pay in lieu of notice – the amount depends on many factors, including whether there is an employment contract limiting the amount to statutory minimums or not.
The purpose of notice of termination is to provide the employee with an opportunity to find a new job. In a wrongful dismissal action, the purpose of damages for reasonable notice is to put the employee in the position they were in had they received proper notice of termination – providing them with the pay and benefits they would have received during the notice period, as well as any bonuses.
This is where it can get tricky. Where does a bonus fit in an employee’s compensation package, and are they entitled to one after they’ve been dismissed? Well, it depends, but if the employer doesn’t have its ducks in a row, it can be on the hook for a lot.
Discretionary vs. regular bonus
A big factor in a fired employee’s entitlement to a bonus is whether it’s discretionary or not. Bonuses are often related to a number of different factors and calculations around the performance of the company and the employee themselves, but many employers get caught thinking bonuses are discretionary when they’ve become a regular part of the employee’s compensation that would be part of the notice period.
Many employers have bonus plans with stated conditions that an employee has to be “actively employed,” or similar such language. However, it’s important to remember that in most cases, courts will consider the notice period to be part of an employee’s active employment, so a dismissed employee would be entitled to a bonus they would have received had they remained employed during the notice period.
The reason for the bonus can affect a fired employee’s entitlement as well. An Alberta court determined that a worker who received an annual performance bonus based on total sales was entitled to a bonus after he was fired for cause. Even though there was just cause for dismissal, the employer had “received the fruit of the employee’s efforts” from the sales the employee had generated and for which the bonus was calculated.
A key consideration in the above case was that the bonus clause in the worker’s employment agreement didn’t expressly limit payment to someone actively employed when the bonus was calculated, as it was based on total sales. The language in any bonus clause is important if the employer wants to limit entitlement when an employee is fired.
Employee during notice period
In a couple of other cases, employees who regularly received bonuses were found to be entitled to bonus as part of their pay in lieu of notice because the bonuses had become a regular part of their annual compensation. Even though the bonus clauses required an employee to be employed with the employer, the courts found that the employees would have continued to receive the bonus had they continued their employment through the notice period.
On the other hand, a bonus that is not paid regularly and is clearly identified by the employer as discretionary and not an obligation, will not likely have to be paid to an employee who has been dismissed. This was the case in an Ontario case where a court awarded a long-term employee 27 months’ pay in lieu of notice for wrongful dismissal, but not any damages for a discretionary bonus that the employee had received for a few years but not in the two years prior to dismissal.
Giving out bonuses to employes can be a great way to motivate them and help keep them on board, but sometimes an employer might be stuck giving a bonus to someone who’s already out the door. As with many things, paying attention to the fine print can be the difference between a clean break and a bonus round in a fired employee’s notice entitlement.
