If an employee is terminated and their remuneration package included a bonus component, they should vigorously pursue their claim for damages for the loss of the bonus(es). If payment for the bonus(es) is not included in the Company’s proposed severance package, the employee is actually receiving significantly less than what it may have appeared to them. For example, at the time of termination, the employee has an annual base salary of $150,000 plus bonuses totaling $75,000. The Company’s proposed severance package is a lump sum payment of $150,000 equal to 12 months’ pay. Given that the proposed severance package did not provide for the bonus(es), the employee is not receiving any payment for the bonus(es) during the notice period. What the employee must also be alert to is that if the termination letter is silent on the accrued bonus(es) as of the date of termination, the employee is not receiving these bonus(es).
When a severance package is being negotiated and the employee has a bonus component as part of their remuneration, the employee’s claim for the loss of the bonus(es) can be multifaceted. It may be that the employee received quarterly bonuses during their employment. Depending upon the situation, the employee’s claim for the bonus(es) may be broken down as follows: 1) the bonus fully earned but still outstanding as of the date of termination; 2) the partially accrued bonus as of the date of termination, (ie. for the present quarter) and as such, to be calculated on a pro rata basis to the date of termination; and 3) the bonus(es) the employee would have earned during the reasonable notice period.
What if there is a bonus provision stating that the employee must be “actively employed on the date the bonus is paid out”? See upcoming blog on the Ontario Court of Appeal’s decision in Paquette v. TeraGo Networks Inc.