In the last few months, there has been an influx of commentary on the enforceability of contractual provisions purporting to limit an employee’s bonus entitlements upon termination. Following the Ontario Court of Appeal’s seminal decisions in Paquette v. TeraGo Networks Inc. and Lin v. Ontario Teachers’ Pension Plan, much of this commentary has focused on the language needed to oust an employee’s implied right to their complete compensation package during the reasonable notice period. This focus on semantics has overshadowed one other consideration that remains instrumental to the enforceability of bonus provisions—the need to sufficiently communicate to employees the preconditions of bonus eligibility.
Bonus plans in employment contracts are a great way to motivate, reward and retain employees. Many of these bonus plans have built–in conditions that must be met before these bonuses are paid out. For example, an employee must be actively employed at the time the bonus is paid. Increasingly, the courts are being asked to determine whether these conditions have to be met and whether a bonus is owing. A recent decision by the Ontario Court of Appeal will come as a surprise to many of you.