THE EMPLOYERS' EDGE
Court Finds Expectation of Bonus Not Reasonable When Employee Not Actively Working
A properly drafted employment contract that determines an employee’s entitlements upon termination can reduce the likelihood of protracted litigation but also greatly reduce the compensation owed to an employee. In the case of Fulmer v Nordstrong Equipment Limited, 2017 ONSC 5529 the Ontario Superior Court of Justice was tasked with determining if an employee was entitled to a bonus payment when the notice period stretched into the fiscal year following the termination. Justice Diamond did not have the assistance of an employment contract to determine this question but the decision is a hopeful one for employers.
The defendant (“Nordstrong”) was a designer and manufacturer of conveyer and bulk material handling equipment. The plaintiff (“Fulmer”) was a Controller for Nordstrong from August 2010 until he was terminated without cause on December 12, 2016. The employment relationship was not constituted through a written contract and therefore the entitlement for common law reasonable notice was determined through the application of the oft-quoted Bardal factors of age, length of service, character of employment, and the availability of similar employment with regard to his experience, training and qualification. Fulmer was 59 years of age with just over six (6) years of service at the time of his dismissal. Despite finding that Fulmer did not hold a “classic managerial position”, Justice Diamond awarded 10 months of common law reasonable notice. It is worth noting that this is well above the 1 month per year of service that many employers budget as part of a risk assessment when faced with wrongful dismissal litigation.
Common law reasonable notice sets a period of time for which an employee must be compensated subject to their duty to mitigate damages by making efforts to find alternative employment. The compensation that is owed for the notice period is the same compensation and benefits that the employee would normally be entitled to if they had remained employed for the same period. Fulmer had received an annual bonus at the end of each fiscal/calendar year, including the partial 2010 year, and demanded payment of a bonus for 2016 and 2017. Nordstrong maintained they had an “unofficial policy” that employees must be active (i.e. not terminated) to receive the bonus and Fulmer was terminated prior to the end of the 2016.
Justice Diamond determined that a bonus for the 2016 fiscal year was owed to Fulmer and was valued at $20,000. The 2016 bonus was awarded on the basis that Mr. Fulmer would have been active at the end of 2016 considering the minimum statutory notice period of six weeks pursuant to the Employment Standards Act, 2000. Additionally Nordstrong was on pace for record profits in 2016 and company profits was clearly a factor in determining whether a bonus would be awarded and for what amount.
Conversely, and through a positive analysis for employers, the court found no bonus was owing for 2017. Justice Diamond determined that bonuses were earned and calculated at the end of the fiscal/calendar year. Fulmer’s notice period would have ended in October 2017 and he would not have actively worked a single day during that year. The bonus was granted, not only on company profits, but on the employee’s individual efforts and contributions during that year. The expectation that Fulmer would be awarded a bonus during a period where he is searching for alternative employment was considered far-reaching and outside of reasonable expectations.
The analysis of whether a discretionary bonus should be paid during the common law reasonable notice is a breath of fresh air to employers. Previous case law has supported the notion that very strict and clear contractual language is required to disentitle an employee to a bonus if their employment is terminated prior to the end of the fiscal year. This approach by Justice Diamond gives proper effect to what the parties would have reasonably expected in the circumstances, in the absence of guiding contractual language.
Despite the positive outcome for Nordstrong, the utility of well-crafted employment contracts cannot be overstated. This decision may not stand up to scrutiny if appealed and CCP will keep you updated with any future developments. If you are faced with a claim of wrongful dismissal or need assistance in drafting employment contracts contact one of the lawyers at CCP for professional advice.