Friday, 8 June 2012

Dismissed Employees Still Entitled to Bonus

Is an employee dismissed just before the employer declares a “discretionary bonus” still entitled to that bonus?  “Yes” says a recent decision from the Quebec Superior Court.

In a decision released April 10, 2012, Gilman c. Fieldturf Tarkett Inc., 2012 QCCS 1429, the Honourable Justice David Collier ruled that five senior executives dismissed by their employer were entitled to nearly $2,000,000 in bonuses.

As is set out in Justice Collier’s reasons for decision, throughout the early part of the last decade the five plaintiffs were key employees, central to the success of the defendant employer.  The executives' incentive program changed several times, as is detailed in Justice Collier’s reasons for decision, but the crux was that the executives were consistently entitled to a bonus.  In 2007 the founder and CEO of Fieldturf passed away, resulting in a change in management.  In September 2008 the new management dismissed thirteen employees without cause, including four of the plaintiffs; the fifth plaintiff was constructively dismissed shortly thereafter.

In 2009 Fieldturf paid out share bonuses to all of its salaried employees; but not to the plaintiffs.  Fieldturf argued that once the decision was made to terminate the plaintiffs' employment, Fieldturf’s new CEO, Joe Fields, reasonably exercised his discretion in refusing to pay bonuses to them.

As is set out in the decision, the issues that Justice Collier was asked to resolve were: (a) whether the dismissal of four plaintiffs prior to December 31, 2008 disqualified them from receiving their final share bonus payment; and (b) whether the fifth plaintiff's "resignation" disqualified him.

In holding that the executives were entitled to their bonuses Justice Collier wrote that:

The law in Québec is settled that an employee who is terminated without cause is entitled to receive all of the benefits that accrue during the notice period, including bonuses.  [Aksich c. Canadian Pacific Railway, 2006 QCCA 931 (CanLII), 2006 QCCA 931, paras. 37 and 49.]  Since the plaintiffs' entitlement to receive a phantom share bonus vested on December 31, 2008, i.e. during their respective notice periods, the plaintiffs Mozskowski, Gilman, Reynolds and Petrucelli are eligible to receive bonuses notwithstanding their dismissal in September 2008.  [Emphasis added.  Para. 36]

Justice Collier’s remarks in this respect echo those of Ontario Superior Court Justices Echlin and Roberts as summarized in an earlier blog post, here.

Although no claim for constructive dismissal appears to have been advanced on behalf of the plaintiff Troy Squires (who was not dismissed in September 2008, but rather refused to sign an amended employment agreement in January 2009), Justice Collier ruled that:

[43]  Squires' resignation was justified.  The draft agreement D-8 drastically changed his former terms of employment.  Squires' remuneration was reduced by US $ 100,000 a year.  Squires had to report to a new boss, which he considered a demotion.   Squires was also required to move his family from Texas to Georgia by February 1, 2009, despite the fact that the sub-prime mortgage crisis in the US made it virtually impossible for Squires to sell his home without incurring a significant loss.  As of January 2009, Squires had not yet come to terms with Fieldturf Tarkett regarding his housing allowance and relocation costs.

[44]  For the foregoing reasons, the Court concludes that Troy Squires' resignation did not justify the defendant's refusal to pay him a phantom share bonus in 2009.

Specific to issues of Quebec law, but nonetheless interesting for those outside that province, Justice Collier wrote that:

[45]  In Québec law, an employee is not entitled to claim a bonus if the payment is discretionary and depends entirely upon the employer.  Nevertheless, evidence that a bonus was regularly paid to an employee in the past may rebut the argument that its attribution was discretionary.

[46]  When a bonus was continuously paid to an employee in the past, it may be considered an integral part of his or her remuneration and cannot be withheld by the employer.

Justice Collier ruled that the executives had come to expect the bonus, which had demonstrably routinely been paid as a part of their remuneration, and therefore were entitled to same.

According to a recent article in The Lawyers Weekly, the case has been appealed.

The case is interesting from an Ontario perspective as it speaks to a reasonable, pragmatic approach to dealing with dismissed employees and their bonuses.

The lesson for employers is that an attempt to defeat a bonus by dismissing the employee just on the eve of payment will likely not be successful.

If you have been recently dismissed, and believe that you may have been entitled to a bonus not contemplated by your severance agreement, it may be prudent to seek professional employment law advice; I would be happy to speak to you. 

As always, everyone’s situation is different.  The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.

Sean Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer.  He tweets from @SeanBawden.

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