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Many bonus plans contain a provision to the effect that to receive a bonus the employee must be employed by the Company.  They might say that the employee must be employed on the date that the bonus was declared and the date the bonus is paid.

The Supreme Court of British Columbia considered such an argument Szczypiorkowski v. Coast Capital Savings Credit Union (October 17, 2011, BCSC).  The Court determined that the period of reasonable notice in the circumstances was 18 months and then went on to consider whether damages should include bonus payments through the period of reasonable.  Among several arguments advanced by the employer in support of its posiition that damages should not include a bonus, was the wording of the bonus guidelines:

The defendant says its bonus guidelines require that “the employee must be in the employ of the credit union … in order to be eligible to participate,” meet team targets set by the defendant, and also meet performance expectations in order for the employee to be eligible for a bonus.

… the defendant says that since the plaintiff was dismissed as of 16 November 2010, he was not employed and therefore would not be eligible for a bonus.

Though not referred to in Szczypiorkowski, of relevance to the discussion is Grace v. Reader’s Digest Assn. (Canada) Ltd. where it was held that:

The case law is clear that where there is a non-discretionary bonus and where the employer seeks to rely on a term requiring the employee to meet certain conditions such as being on the pay-roll as of a certain date, the employer must communicate that requirement to the employee. If the employer has failed to do so, then the employee is entitled to claim the bonus.

Back to Szczypiorkowski where the Court put it this way:

Turning to the defendant’s first argument, I find this position without merit for the simple reason that had CCS not wrongfully dismissed the plaintiff, Mr. Szczypiorkowski would have been employed and entitled to his bonus. Based on Mr. Szczypiorkowski regularly receiving a bonus in the past, it is reasonable to assume he would have continued to receive a bonus if he had continued his employment with the defendant.  In Ferguson v. Kodak Canada Inc., [1992] B.C.J. No. 2545 (S.C.), when considering a similar argument with regard to the award of dividends to a wrongfully dismissed employee, the court stated:

In my view the clause was not designed to meet the situation of a wrongfully dismissed employee who was deprived of the opportunity to work. He is entitled to be compensated by an award of damages that puts him in the position he would have been in had reasonable notice been provided…..

This is the key phrase and one that informs all damages assessments (subject to contractual terms to the contrary):

Indeed, Ms. Fordy deposed that employees who are given working notice “would be paid their bonus during the working period.”

In the end, and after going through further analysis, the Court concluded that the plaintiff was  entitled to damages that included bonuses he would have received “had he remained an employee of the defendant, and extending until the expiration of the reasonable notice period.”  The Court applied a similar analysis when awarding other damages to the plaintiff.

See also the discussion in Poole v. Whirlpool Corporation.

Clearly drafted, properly entered into and transparent written employment agreements can unambiguously spell out the expectations and intentions of the parties (employer and employee) and help resolve many of these damages issues.  Employers would be wise to get advice when considering these arrangements to maximize the chances that they’ll achieve their intended results.