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Ontario Court of Appeal Rules That Bonus Plans May Still Need To Be Paid Upon Termination Despite “Active Employment” Clauses

Posted On: November, 20 2017

The Ontario Court of Appeal recently held in Paquette v. TeraGo Networks Inc., 2016 ONCA 618 that the appellant was entitled to bonus payments despite a clause in his contract requiring the employee to remain actively employed by the firm as a condition to the bonus.

Trevor Paquette was employed by TerraGo Networks as a middle manager and was compensated with a base salary with bonus payments. The bonus program contained a clause requiring that an employee be “actively employed by TeraGo on the date of the bonus payout.” Paquette requested the average of his annual bonus payments as part of his compensation during the reasonable notice period.

At trial, Trevor Paquette was awarded 17 months reasonable notice but was not compensated for lost bonus payments. Employment law dictates that terminated employees are entitled to be paid severance based on their total compensation during the reasonable notice period, including salary, benefits and any bonus owing. The Court of Appeal held that the motion judge should have started reasoning from the premise that the employee was entitled to his full compensation package instead of examining the clause on its own. Therefore, the appellant was granted his bonus pro-rated for the duration of the reasonable notice period.

This ruling confirms that the amount of severance paid out to an employee during the reasonable notice period must reflect their total compensation. Merely including an “active employment” clause is insufficient to limit employees’ common law rights. 

 

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