Determining whether a terminated employee is entitled to their bonus, even though they are not actively employed when it is paid out, can be a complicated issue.

As you may know from reading our blogs, when an employee is terminated without cause, they are entitled to receive notice of termination or pay in lieu of this notice. Wrongful dismissal damages are meant to place the terminated employee in the same financial position as if they had worked throughout the notice period. When a judge is calculating wrongful dismissal damages , they will typically include an amount equal to all of the compensation and benefits that the employee would have earned during the notice period. However, whether a terminated employee is entitled to their bonus depends on the circumstances of each case. To read our previous blogs on this topic, click here.

Employment contracts often stipulate that employees must be actively employed as a condition to receive a bonus. One recent case of the Ontario Court of Appeal suggests that employees may be entitled to a bonus even if the person was not actively employed when the bonus was payable.

Paquette v TeraGo Networks Inc.

In this case, Mr. Paquette was terminated without cause after 14 years of employment. After Mr. Paquette and his former employer were unable to agree on a severance package, Mr. Paquette sued for wrongful dismissal. The judge fixed the reasonable notice period at 17 months, and awarded damages based on the salary and benefits that he would have received during the notice period. However, the judge rejected Mr. Paquette’s claim for damages for lost bonus payments on the basis that the bonus plan required the bonus recipient to be “actively employed.” The contractual language stated that an employee “actively employed by TeraGo on the date of the bonus payout” was eligible for a bonus based on their salary. Mr. Paquette appealed from that finding.

The appellate court found that Mr. Paquette’s bonus was an integral part of his compensation. The court then considered whether there was something in the bonus plan that specifically removed the appellant’s entitlement to the bonus.

The judge concluded that despite the language in the bonus plan requiring employees to be actively employed, this language was not sufficient to remove Mr. Paquette’s entitlement to compensation for the bonus he would have received during the notice period as part of his wrongful dismissal damages. Accordingly, he was awarded $58,000 for both the lost bonus during the 17 month reasonable notice period.

Lessons to be Learned

1. At the time of termination, you may be entitled to termination pay calculated on the basis of your total compensation, rather than just your base salary.

2. When determining whether you are entitled to a bonus during a notice period a judge will generally consider whether your bonus is an integral part of your compensation.

3. You may be entitled to your unpaid bonus even if your contract states that you must be actively employed to receive it.

If you have been terminated and have questions about your severance package and/or the payment of your bonus, please contact us at [email protected] or 647-204-8107.