At Goldstein Law, our employment lawyers focus on the niche area of executive employment law. In addition to providing advice and counsel with respect to contracts and employment offers, wrongful dismissal, constructive dismissal and changes to employment, termination, our executive employment lawyer routinely assists executives and other senior employees with issues that are unique to the senior executive or employee, including: duties of departing executives, fiduciary duties, executive and other complex compensation models and plans, bonus issues, deferred compensation, changes of control, mergers and acquisitions, non- compete and non-solicitation agreements.
Bonuses During the Notice Period for Executives
A particular issue that often arises in the context of executive employment law is how to deal with bonus claims in wrongful dismissal actions. Where a terminated executive employee claims damages for lost opportunity to earn bonuses during their reasonable notice periods, an employer will often rely on language in their bonus policy that attempts to deprive the employee of their bonus if they were not “actively employed.”
The Court in Paquette v. TeraGO Networks established a two-part test to govern bonus claims:
- Was the bonus an integral part of the compensation package; and
- If so, is there language in the bonus plan that restricts the common law entitlement to damages in lieu of a bonus over the notice period?
An employee will typically have a right to claim damages in relation to a bonus that is an “integral part” of their compensation, even if the bonus is described as discretionary. Whether the bonus plan ousts the employees entitlement to bonus during the notice period is based on whether the wording unambiguously alters or removes the employee’s common law rights.
What Bonus Clause Will Oust the Common Law?
In Paquette, the Court held that a clause that required an employee to be “actively employed” by the employer on the date of the bonus payout was insufficient to displace the common law entitlements to damages for a lost bonus. Further, in this case, the Court validated the use of a three-year average total compensation to determine the value of subsequent bonuses payable during the notice period.
There have been a number of updates with respect to deferred bonuses (see Bain v. UBS Securities Canada Inc.), principles applicable to stock options and restricted share units (see O’Reilly v. IMAX Corporation) that our executive employment lawyers understand and reference to support your entitlement to full compensation during the reasonable notice period. Should you have any questions about your common law entitlements to bonus or deferred compensation on the termination of your employment, it is advisable to contact a law firm that specializes in executive employment law.