Voluntary Resignation = Forfeiture of Bonus?

 

The answer is, as always, it depends… The Ontario Court of Appeal in Bois v. MD Physician Services Inc., recently denied entitlement to a bonus payout to an employee who quit his job. The Court found that the language of the bonus plan – which required “active employment” as a condition to receive a bonus payout – did not violate the Employment Standards Act, 2000 (the “Act”).

Mark Bois worked for the respondents for about fourteen years before resigning in October 2011. As part of his compensation, Bois was eligible for bonuses paid as part of a Variable Incentive Plan (“VIP”). Under this plan, an annual bonus was payable in equal installments over the three years following the calendar year for which the bonus was awarded. The VIP was put in place in 2007 and contained the following provision:

“In the event a Participant’s continuous Active Employment terminates, either voluntarily or involuntarily and whether for cause or not for cause, the Participant will immediately forfeit any entitlement to any payments under this plan whether attributable to prior years or to the current year.”

A few years later, a second VIP replaced the original. It contained a similar provision which stated: “Any employee who has left the organization or has given notice to leave the organization on or before the incentive payment date will not be eligible to receive a payment”.

Further, in March 2010, the parties signed a letter agreeing to the following:

“In any given year, you must be a permanent employee of the CMAH Group of Companies on December 31 of the year for which the incentive is paid and continue to be so employed on the payment date(s) to receive a payment. Any employee who is no longer employed with the organization or has given notice of termination prior to the payout date will not be eligible to receive a payment.”

Bois resigned before the payout dates for the final installment of his 2009 bonus and two installments of his 2010 bonus.

These installments totaled $114,916.79.

Bois’ action seeking payment of the installments was dismissed on a Summary Judgment Motion. He appealed on the ground that the motion judge misinterpreted sections 11(5) and 13 of the Act.

The Court of Appeal also dismissed Bois’ appeal.

The Court held that the language of the VIP – combined with the 2010 letter – was clear and unambiguous in disentitling Bois to the bonus payouts. The Court further upheld the Motion Judge’s ruling that the language did not violate sections 11(5) or 13 of the ESA.

Section 11(5) of the Employment Standards Act, 2000 states:

11(5) If an employee’s employment ends, the employer shall pay any wages to which the employee is entitled to the employee not later than the later of,

(a) seven days after the employment ends; and

(b) the day that would have been the employee’s next pay day.

Section 13(1) of the statute goes on to provide that an employer shall not “withhold wages payable to an employee, make a deduction from an employee’s wages or cause the employee to return his or her wages to the employer.”

Bois argued that where a bonus has been awarded for a year, but at the time of the employee’s resignation future bonus installments remain to be paid out, section 11(5) of the ESA effectively operates to accelerate the employer’s obligation to pay out future installments, notwithstanding language in an incentive plan requiring the employee to be actively employed at the date of any future payouts. He took the position that to the extent that the terms of the VIP sought to disentitle him to the future installments, such terms were void, as they contravened section 13(1) of the ESA.

The Court of Appeal did not agree.

The Motion Judge interpreted section 11(5) of the ESA as requiring the employer to determine whether, at the time Bois’ employment ended, he was entitled to the payment of any bonus installments based on the wording of the VIP and the length of his notice period. She concluded that the employer correctly determined that Bois’ entitlements were extinguished by virtue of his resignation because the VIP required an employee to be actively employed with the employer on the date of a bonus installment payment in order to receive it.

Citing its decision in Kielb v. National Money Mart Company, the Court of Appeal explained that it was open to the parties to agree how and when any bonus was declared, earned, accrued and would be payable. A compensation plan’s requirement that the employee be actively employed at the time of a future payout does not contravene section 11(5) of the ESA, nor does such an active employment provision contravene section 13(1), as the future payouts do not constitute “wages payable to an employee” at the time of his resignation.

Key Takeaways

As the Court of Appeal emphasized in this case, it is open to the parties to agree how and when any bonus is declared, earned, accrued and will be payable. However, limiting an employee’s entitlement to receive non-discretionary bonus payments after termination requires the use of clear, unambiguous language. Employers should consider using experienced employment counsel to draft these provisions in order to minimize risk and save on potential costs upon an employee’s termination of employment

Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues. Whether you are an employer or an employee, we can help. Contact us to see how.

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