Employer Liable for Bonus, Again.

Koski v. Terago Networks Inc., 2021 BCSC 117

Koski was dismissed without cause and without notice after 13 years of employment.  Although he had an employment contract, it did not include a termination clause.  The court found that Koski was entitled to 13 months of notice.  The court also found that Koski was entitled to the bonus he would have received during his notice period despite a bonus plan/policy that contained restrictive language to the contrary. 

This case discusses issues of i) determining reasonable notice; ii) mitigation of damages; and iii) the entitlement to damages for bonuses payable during the notice period.  This article will focus on the issue of the entitlement to damages for a bonus payable during a notice period.  For more on the other issues, you can find the entire case here.  

Facts

On November 20, 2019, Koski was dismissed without cause and without notice.  After the court awarded damages equivalent to 13 months of notice, it considered whether Koski was entitled to a bonus as part of his damages.  Terago’s bonus plan/policy included the following under the “Eligibility” section:

…any…reasonable notice period applicable to an employee who was been dismissed by the Company (whether with or without cause) that overlaps with a bonus payout date shall not be considered as satisfying the “actively employed” requirement of the Program.  As such, employees who have been terminated or who have resigned prior to the bonus payout date are not eligible for any bonus payments referenced herein.

The employer argued that as Koski was not actively employed at the time of the payment of the bonus, he was not eligible for payment.  Terago’s bonus policy was incentive based and Koski would be entitled if he and the company reached certain targets.  The bonus was paid out quarterly.  Koski received bonuses of $12,500 in 2017, $20,215 in 2018, and $10,931 in the first 3 quarters of 2019 before his dismissal.  It is noteworthy that Koski acknowledged that he received the bonus plan, read and did not take issue with the terms, and agreed to the bonus plan.

Issue – Is Koski entitled to any incentive bonus he could have earned during the notice period?

A two-step approach is applied in making this determination:

1) Would Koski have been entitled to the bonus as part of his compensation during the notice period?

2) If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right?

Step 1

The onus is on Koski to establish that he would have earned a bonus if he worked through the notice period, and whether or not the bonus is an integral party of Koski’s compensation is also taken into account.  Terago argued that Koski would not have received a bonus as he was dismissed due to poor job performance.  The court disagreed as Koski qualified for bonuses in the first 3 quarters of 2019, with the 3^rd quarter bonus being the highest.  The court concluded that Koski would be entitled to a bonus during the notice period.

Step 2

The court stated that the wording of the policy limiting or removing common law rights must be absolutely clear and unambiguous and that these types of contracts will be strictly construed.  The court discussed previous cases that found that terms requiring employees to be “full-time” or “active” will not suffice to remove an employee’s common law rights to damages.  This is because had the employee been given proper notice, they would be “full-time” or actively employed” throughout the notice period. 

The court concluded that the use of the phrase  “actively employed” in Terago’s bonus policy was not sufficient to exclude Koski’s entitlement to a bonus.  Employment contracts are not considered terminated until after the reasonable notice period expires.  Therefore, the court found that in Terago’s bonus policy, references to reasonable notice periods that overlapped with bonus payout dates, combined with references to employees that were terminated before the bonus payout date, made the term unclear and ambiguous as to whether it limited or removed Koski’s bonus entitlement. 

Conclusion

Koski was awarded damages relating to his bonus in an amount equivalent to the monthly average of his 2019 bonus, multiplied by 13 months, which was the reasonable notice period.

Notes to Employers

Review your bonus policy in relation to termination of employment.  Terms/clauses must be “absolutely clear and unambiguous” to effectively limit bonus entitlements of terminated employees, and be aware that the courts will heavily scrutinize the language used in a bonus policy that limits an employee’s entitlement.     

Have further questions regarding this publication? This post was authored by Ryan Chan. Please don’t hesitate to contact him at [email protected] or anyone else listed on the authors page.