bonus on termination

Goldstein Law has assisted terminated employees in recovering thousand’s of dollars in bonus pay following a termination when an employer originally refused to provide a payment on account of incentive compensation (i.e., bonus, commission, stock options, pension contributions, etc.) in the severance package.

The general rule is that termination pay in lieu of notice of termination is intended to include all forms of compensation that an employee would have been entitled to if they continued working for the employer throughout the notice period. Employers can, however, draft employment contracts to limit an employees entitlements on termination to those expressly outlined in the Employment Standards Act so long as the termination provision in the contract is drafted clearly and unambiguously.  Also, a bonus policy can limit an employees’ entitlement to bonus on termination, but again, such policy must be clearly drafted; otherwise, it will be held by a Court to be unenforceable.

In the case of Paquette v. TeraGo Networks Inc.the Court found that a bonus policy that required the employee to be actively employed to receive the bonus, without more, was not sufficient to oust the employer’s obligation to make bonus payments during the termination period – something more was required.

The Court enunciated a two-part test to determine whether a bonus applies after termination:

“The first step is to consider the [employee’s] common law rights. In circumstances where, as here, there was a finding that the bonus was an integral part of the terminated employee’s compensation, [the employee] would have been eligible to receive a bonus in February of 2015 and 2016, had he continued to be employed during the 17-month notice period.

The second step is to determine whether there is something in the bonus plan that would specifically remove the [employee’s] common law entitlement. The question is not whether the contract or plan is ambiguous, but whether the wording of the plan unambiguously alters or removes the [employee’s] common law rights.”

Accordingly, the wording of your bonus plan and the importance of the bonus in the context of your overall compensation are key factors in considering whether you are entitled to a bonus payout in conjunction with your severance package.  For advise on whether your employer has offered a fair severance package, please call Goldstein Law for a free consultation to review whether all compensation has been accounted for in the severance packaged offered to you.