In a recent decision, the Ontario Court of Appeal upheld a lower court’s decision to enforce strict bonus eligibility language in an employment contract. The plaintiff had been employed in the position of Vice President and Division General Counsel under a negotiated written contract. The employment contract clearly spelled out how the employer’s bonus plan worked, as well as the circumstances in which the plaintiff would become ineligible to receive a bonus. In short, the contract specified that the plaintiff would only be eligible to receive a bonus if he was employed at the time of the bonus being paid. The agreement also set out several examples to demonstrate how this rule would apply in various circumstances to clarify the eligibility language.
The plaintiff was terminated on a without cause basis approximately five months in advance of the bonus payout date in 2010. The employment contract entitled the plaintiff to only eight (8) weeks’ notice of termination, which fell significantly short of the bonus payout date. Consequently, the employer took the position that the plaintiff was not entitled to any bonus payment.
The plaintiff sued for wrongful dismissal, and claimed entitlement to a bonus. The plaintiff claimed that the bonus language in the employment contract was unenforceable on various bases, including that it was illegal, ambiguous, and contrary to public policy.
The Superior Court of Justice upheld the employer’s bonus eligibility language on the basis that it was very explicit (including the use of examples), and that there was no ambiguity with respect to the circumstances in which a bonus would be payable. Although the effect of the language was harsh, the Court found that a harsh provision could still be enforceable if both parties had agreed to it.
On appeal, the Court of Appeal found that the relevant terms of the contract were fully compliant with the employment standards legislation. The Court of Appeal agreed with the trial Court’s reasoning that “[p]ublic policy would be ill served by permitting the plaintiff to accept a potentially lucrative position with the full knowledge that it contained a potentially unfavourable limitation clause and then to complain when that clause was actually executed”.
This decision is a positive one for employers following a number of decisions in which Ontario courts (including the Court of Appeal) have been hesitant to enforce contractual language limiting a dismissed employee’s entitlement to a bonus. This case indicates that where bonus limitation and termination language is clear, explicit, and compliant with minimum employment standards legislation, it will be enforced. Notably, the plaintiff in this case was particularly sophisticated, so it remains to be seen whether courts will respond similarly to a more sympathetic plaintiff.