When must a bonus payment be included in the calculation of an employee’s salary for the purposes of calculating notice and severance entitlements? According to a recent decision from the Ontario Superior Court, Dimson v. KTI Kanatek Technologies Inc., 2012 ONSC 6556 (CanLII), only if it is made in the 12 weeks leading up to termination.
In a decision that still leaves this author scratching his head, the Honourable Justice Sidney N. Lederman held that a contractual provision that used the words “will not” sometimes means that the employer “will”. With respect, I believe His Honour misinterpreted the contractual language.
The issue for determination by the court was whether the following provision was enforceable for the purposes of calculating the dismissed employee’s salary pursuant to sections 61(1.1) and 65(6) of the Ontario Employment Standards Act, 2000:
If at any time KANATEK [the employer] provides you with a bonus, it will not be included in the calculation of payment for the purpose of this Article or as otherwise agreed to or required by the Employment Standards Act.
The reason that the provision is of importance is the wording of sections 61(1.1) and 65(6) of the Act. Section 61(1.1) is the section dealing with statutory notice; 65(6) deals with severance. Section 61(1.1) provides as follows:
For the purposes of clause (1)(a), [the right to pay cash in lieu of notice] if the employee does not have a regular work week or is paid on a basis other than time, the amount the employee would have been entitled to receive under section 60 shall be calculated as if the period of 12 weeks referred to in subsection 60 (2) were the 12-week period immediately preceding the day of termination.
For the sake of completeness, subsection 60(2) reads:
…if the employee does not have a regular work week or if the employee is paid on a basis other than time, the employer shall pay the employee an amount equal to the average amount of regular wages earned by the employee per week for the weeks in which the employee worked in the period of 12 weeks immediately preceding the day on which notice was given.
Returning to the case at hand, it was agreed that the dismissed employee, Fred Dimson, was an employee of the defendant for six years from February 13, 2006 to February 2, 2012. At the time that his employment was terminated, he occupied the senior position of Vice-President, Strategic Accounts.
While employed by the defendant, his compensation package included an annual salary of $165,000, full benefits, a car allowance, commissions, and a bonus based on the company’s earnings before interest and taxes.
The plaintiff was dismissed on a without cause basis on February 2, 2012.
Because Mr. Dimson was paid on a basis other than time, his entitlements were to be calculated in accordance with the provisions of the above-referenced sections of the ESA.
The defendant did not average the plaintiff’s bonus earnings in the calculation of his termination and severance pay, and Mr. Dimson brought a motion before the court to determine the correctness of the employer’s decision.
At the hearing of the motion to determine the issue, the employer took the position that because Mr. Dimson did not receive a bonus during the twelve weeks prior to his termination, the bonus would not form part of the termination and severance pay calculations pursuant to the ESA.
For its part, plaintiff’s counsel submitted that clause 18 of the employment contract was illegal in that its language is expressly contrary to s.5(1) of the ESA. Plaintiff’s counsel submitted that clause 18(d) of the employment contract states that the profit sharing bonus that the plaintiff received would not be included in the plaintiff’s termination and severance pay as “required by the Employment Standards Act”. Counsel submitted that a plain and literal reading of clause 18(d) confirms that the defendant drafted a clause that was intended to waive a right that was required by the ESA.
Although not stated in the decision, as I read Justice Lederman’s account of plaintiff counsel’s arguments, it would appear that the plaintiff’s reading of the clause was that even if the bonus payment had been made in the 12 weeks leading up to termination, the employer would still not include it in the calculation of his entitlements.
In deciding that the bonus was not to be included in the calculation of the dismissed employee’s income Justice Lederman held that:
Whether a bonus is to be included in the calculation of termination entitlements under the ESA depends upon the date of termination in relation to the preceding twelve week period. In some cases, it would be included while in others, it would not. (Para. 24)
Justice Lederman then added the following at paragraph 25:
The plain, literal and sensible meaning of clause 18(d) is that if, in the circumstances, the bonus is to be taken into calculation under the ESA, then it is to be included as it is required by statute. In other words, clause 18(d) makes it clear that with respect to the bonus, it will be included in termination entitlement calculations if the parties come to a subsequent agreement about this or it is specifically required by the ESA. [Emphasis added.]
For the sake of convenience, here is clause 18(d) again, with emphasis added by me:
If at any time KANATEK provides you with a bonus, it will not be included in the calculation of payment for the purpose of this Article or as otherwise agreed to or required by the Employment Standards Act.
With respect, I must disagree with Justice Lederman’s interpretation. It would appear plain to me that the employer’s intention was to remove any bonus payment from inclusion in “the calculation of payment for the purpose of this Article or as otherwise… required by the Employment Standards Act.”
While such a provision would clearly be illegal, that is the only interpretation that the provision can be given. The provision should have been struck down for illegality.
I am at a loss as to how the court could interpret the word ‘never’ to be ‘sometimes.’ That said, it is the decision of the court and subject to any appeal the one with which we are presently stuck. Given the amount in issue and the ramifications of the decision, I suspect that an appeal will be taken.
For employers looking to reduce their contingent liabilities on termination however, it would appear that a calendar would be a sound investment for 2013.
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 practicing with Kelly Santini LLP. He tweets from @SeanBawden.