Is Failing to Pay a $329K bonus Constructive Dismissal?

Mar 24, 2017

In a recent decision, Chapman v. GPM Investment Management, the Court of Appeal for Ontario (ONCA) said no.

Facts

In this case, the employee’s contract provided for a bonus to be calculated on the company’s pre-tax income. Prior to the employee starting his position, the employer, GPM, purchased some land as an investment.  GPM made capital gains from the investment, but it was unique for the employer’s business and the only investment of its kind that GPM made.

In October 2011, GPM told the employee that it would exclude from his bonus the capital gains made from the land purchase. The resulted in a reduction of the employee’s bonus by $329,687.

The employee quit and claimed constructive dismissal. The Ontario Superior Court said it was not a constructive dismissal and the ONCA agreed.

The Courts’ Reasons

What is Constructive Dismissal

The ONCA reviewed the Supreme Court’s test for constructive dismissal set in 2015.  The test has two parts. Briefly:

(1) was the employer’s conduct a unilateral breach of the employment contract and did it substantially alter a term of the contract; or

(2) was there a series of acts that showed the employer no longer intended to be bound by the contract.

Why this was not Constructive Dismissal

Both levels of court found that not paying the employee the $329K bonus was a breach of his employment contract.  He was owed the funds by the employer.

However, the ONCA agreed that this was simply a dispute between the employee and employer about the interpretation of the bonus scheme – whether the capital gains from this one land purchase be captured by the employee’s bonus plan.

The courts found that the employer did not actually alter the employee’s contract in any way and that a reasonable employee would not believe it did.

The court further found that the employee ought to have explored other dispute resolution alternatives instead of quitting and suing for constructive dismissal.

Lessons

This decision will likely come as a surprise to many.  Most employees would believe that if their employer owes them a $329K bonus and fails to pay it that they have been constructively dismissed.

The case demonstrates the ongoing difficulty with constructive dismissal.

Before making a decision to quit and claim constructive dismissal, employees should seek professional advice.  There may be alternative steps the employee can take to achieve the desired result, without the risk of quitting and suing for constructive dismissal.

If you would like to speak to a lawyer at MacLeod Law Firm, you can reach us at [email protected] or 647-204-8107.

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

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