Twin Decisions of ONCA Uphold Taggart Approach: Clear Bonus Plan Language Required to Limit an Employee’s Common Law Right to Bonus Over Reasonable Notice Period
In the recent Ontario Court of Appeal decisions, Lin v. Ontario Teachers’ Pension Plan and Paquette v. TeraGo Networks Inc., the court considered whether the terminated employees in question were entitled to bonus compensation upon termination, in light of bonus plan provisions in place which provided for the disentitlement and/or forfeiture of same.
In both cases, the court held that despite bonus plan provisions to the contrary, the employee was entitled to damages on account of his earned but unpaid and/or lost bonus compensation up to the date of termination and over the reasonable notice period. The court supported this finding using its analysis in Taggart v. Canada Life Assurance Co., holding that the bonus plan provisions in question were not sufficiently clear to limit either employee’s common law entitlement to damages arising from their wrongful dismissal, which were held to include damages on account of the bonus compensation that each employee would have earned over the reasonable notice period, given that their bonuses were integral to their overall compensation.
In applying the Taggart approach, Ontario’s highest court has made clear that, notwithstanding any bonus plan provisions purporting to disentitle an employee to bonus compensation upon termination, an employee’s entitlement to same cannot be determined by looking at the language of the plans alone. The starting premise is the same: The employee’s common law rights arising from a wrongful dismissal: A terminated employee is entitled to damages in lieu of reasonable notice equal to the compensation, including any bonus compensation that he or she would have earned had he or she been provided with reasonable notice. The question then becomes whether the applicable bonus plan documentation is sufficiently clear to oust the employee’s common law rights. To be clear, the question is not whether the bonus plan language is ambiguous, but whether the wording of the plan unambiguously alters or removes the employee’s common law rights.
Lin v. Ontario Teachers’ Pension Plan
In Lin, in upholding the lower court’s finding that Mr. Lin was indeed entitled to damages on account of his bonus compensation over the notice period, despite bonus plan provisions which purported to disentitle Mr. Lin to his bonus after termination, the Court of Appeal applied its analysis in Taggart, quoting Sharpe J.A.:
“When considering a requirement of active service as a prerequisite for the accrual of pension benefits in a wrongful dismissal case, the claim is not for the benefits themselves, but for common law contract damages, as compensation for what the employee would have earned had the employer not breached the employment contract by failing to give reasonable notice. They affirmed that the proper way to analyze the claim is to consider first the terminated employee’s common law right to damages for breach of contract, and second, whether the terms of the plan alter or remove a common law right.”
Recognizing settled law which provides that wrongful dismissal damages or damages in lieu of reasonable notice should place an employee in the same financial position he or she would have been in had notice been given and had the employee worked to the end of the reasonable notice period, the court stated that such damages will generally include an amount on account of bonus compensation where a bonus is an integral part of an employee’s compensation package.
Ultimately, the court held that the language of OTPP’s bonus plan, which stated that no bonus is payable where employment is terminated by the employer prior to the payout of the bonus, was insufficient to deprive a terminated employee of the bonus he or she would have earned during the period of reasonable notice. In so doing, the court affirmed its position in Taggart, stating that clear language is required in order to take away or limit a dismissed employee’s common law rights. The court noted that the wording of the OTPP’s provision was, in effect, the same as a requirement of “active employment” at the date of bonus payout, which was not sufficient to oust the employee’s common law rights. As such, the court upheld the lower court’s award of damages to Mr. Lin on account of his bonus compensation.
Notably, in the lower court decision, Justice Corbett held that OTPP’s amendments to the bonus plan provisions by OTPP, though not in effect, would have been found to be an unlawful penalty from which relief from forfeiture ought to be granted. Justice Corbett held that allowing the OTPP to disentitle an employee to his bonus by terminating him or her without cause would unjustly enrich the OTPP at the expense of the employee and deprive the employee of a material portion of his or her annual compensation. The Court of Appeal agreed with the lower court’s finding that the amended provisions of the plan documentation were not operative in this case, thus it was not necessary for them to consider this argument. Given the likelihood that this argument will be relied upon by employee counsel in future wrongful dismissal actions, the Court of Appeal will hopefully have the opportunity to weigh in on its merit in future actions.
Paquette v. TeraGo Networks Inc.
Similar to Lin, in Paquette v. TeraGo Networks Inc., the Court of Appeal held that the lower court had incorrectly approached the analysis as to whether or not Mr. Paquette was entitled to bonus compensation as part of his damages for wrongful dismissal. Instead of commencing it’s analysis from the premise that Mr. Paquette was entitled to common law damages arising from his wrongful dismissal (including any bonus compensation he would have earned over the notice period) and then examining whether any bonus plan existed to limit or restrict that right, the lower court’s analysis focused only on the wording of the bonus plan. Ultimately, the lower court held that as that there was no ambiguity in the terms of the bonus plan regarding the requirement of “active employment” at the time of payout (i.e. though Mr. Paquette might notionally be an employee during the reasonable notice period, he would not be an “active employee”) he would not qualify for a bonus.
Contrary to the above, the Court of Appeal in Paquette clarified that the proper approach was to apply the Taggart analysis stating that: “The question is not whether the contract or plan is ambiguous, but whether the wording of the plan unambiguously alters or removes the appellant’s common law rights”. In so doing, the Court of Appeal has definitively set out the approach for determining whether or not an employee is entitled to bonus compensation as part of his or her wrongful dismissal damages in light of any bonus plan documentation:
“The first step is to consider the appellant’s common law rights. In circumstances where, as here, there was a finding that the bonus was an integral part of the terminated employee’s compensation, Paquette would have been eligible to receive a bonus in February of 2015 and 2016, had he continued to be employed during the 17 month notice period. The second step is to determine whether there is something in the bonus plan that would specifically remove the appellant’s common law entitlement.”
The court went on to find that this approach is consistent with the conclusion in other cases dealing with bonuses, namely, Schumacher v. Toronto-Dominion Bank and Bernier v. Nygard International Partnership.
Similar to Lin, the court held that a bonus term that requires active employment when the bonus is paid, without more, is not sufficient to deprive an employee terminated without reasonable notice of a claim for compensation for the bonus he or she would have received during the notice period as part of his or her wrongful dismissal damages. The Court awarded Mr. Paquette damages on account of his earned but unpaid 2014 bonus and the bonus he would have earned over the notice period in 2015.
Notably, the court did not consider the argument raised by counsel for Mr. Paquette that the employer’s bonus plan provisions were void in light of s. 230(1) of the Canada Labour Code (“CLC”). This provision prohibits an employer, after giving notice of termination of employment, from altering any term or condition of employment of the employee without the employee’s consent. The court held that given that the bonus term requiring active employment at the date of payment of the bonus did not disentitle Mr. Paquette from receiving the bonus he would have earned over the notice period as part of his compensation for wrongful dismissal, it did not need to consider this argument. Similar to the comment above, the Court of Appeal will likely have an opportunity to consider this argument going forward, given the likelihood that it will be relied upon by employee counsel in future wrongful dismissal cases.
In summary, both these cases signal the Court of Appeal’s move to consistency in its approach to the determination of an employee’s entitlement to common law damages upon a wrongful dismissal. Notwithstanding any bonus plan provisions purporting to limit or forfeit an employee’s entitlement to bonus compensation upon termination, such language is not determinative and the starting premise will always be an employee’s common law rights.