September 09, 2016

Terminated Employee Entitled to Bonus Payments

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Paquette v. TeraGo Networks Inc., 2016 ONCA 618

An employee in Ontario was awarded bonus payments for the applicable reasonable notice period following a without cause termination despite the bonus plan’s express terms that personal and company objectives must be met and the employee must be actively employed.

Paquette was terminated without just cause from his employment as Director, Billing and Operations Support Services for TeraGo Networks Inc.  He had been employed with TeraGo for approximately 14 years and he was 49 years old at the time of his dismissal.  There was no contract of employment governing his notice period so the trial judge determined that 17 months would be the applicable period pursuant to the common law.  Paquette was awarded damages for his salary and benefits for that time, but the trial judge concluded that Paquette would not be entitled to bonus payments that would become due during the notice period because he would not be actively employed during that time.  Paquette successfully appealed this ruling.

TeraGo’s bonus plan stated that bonuses were available where:

  • an employee is actively employed by TeraGo on the date of a bonus payout;
  • the employee met his or her personal objectives, determined by the manager and approved by a vice-president; and
  • TeraGo's performance met the corporate objectives set by its Compensation Committee.

The Court of Appeal clarified that Paquette was not claiming the bonuses, which were governed by the plan, but instead he was claiming damages for the employer’s failing to provide reasonable notice.  An employee has a right to work and in exchange to be paid and provided with benefits in the usual course during the reasonable notice period.  If the employer does not provide such an opportunity, the employee is entitled to the damages that would put the employee in the same financial position he would have been in had reasonable notice been given.  Since the court found that Paquette would have received the bonuses had his employment continued during the reasonable notice period, he was entitled to the equivalent to these sums.

Lesson for Employers

Where there is no employment contract, the employer-employee relationship is governed by the common law and employees are entitled to the common law reasonable notice period when terminated without just cause.  If the employer does not provide the employee with this amount of working notice, employees are entitled to damages equivalent to their salary and benefits for the outstanding notice period.  Where bonuses are an integral part of the employee’s compensation package, employees are also entitled to the equivalent of the bonus payments they would have received if they had continued in their employment during the notice period.  This can apply in some circumstances even where bonuses are expressly stated to be discretionary.  Employers should consider providing working notice for the reasonable notice period.  Carefully crafted employment contracts can also clarify and substantially reduce employers’ liability in cases of without cause terminations.

A full copy of the Ontario Court of Appeal decision can be found at the following link:
Paquette v. TeraGo Networks Inc., 2016 ONCA 618 (CanLII)


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Terminated Employee Entitled to Bonus Payments

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