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BONUS ENTITLEMENT IMPORTANT IN WRONGFUL DISMISSAL LITIGATION
The entitlement to bonuses has become an increasingly important
issue in wrongful dismissal litigation, as the proportion of total
executive compensation encompassed by such bonuses increases. In
many compensation plans, the potential bonus makes up as much as
fifty percent of overall compensation. It is not surprising therefore
that the entitlement to such bonuses has been extensively litigated
before the Ontario courts.
In a decision released on November 18, 2009, the Ontario Superior
Court considered a claim for wrongful dismissal damages by an investment
banker who worked for Scotia Capital.
The facts in this case are typical of many in the industry, The
plaintiff had been employed by Scotia Capital, and its predecessor,
McLeod Young Weir Limited, for over thirty years. In the course
of that time, the plaintiff had risen to the position of Industry
Head for Forest Products.
In May 2007, Scotia Capital was thinning its ranks and sought
to dismiss the plaintiff. Scotia Capital did not take the position
that it had cause to do so. Rather, it offered the plaintiff a
severance package of eighteen months pay in lieu of notice. The
plaintiff rejected that offer and commenced an action against Scotia
Capital. In spite of the commencement of litigation, Scotia continued
to pay the plaintiff his base salary and the bulk of his benefits
for eighteen months following the termination of his employment.
The employee had received poor performance reviews in 2006 which
resulted in a significant reduction in his bonus. This reduction
reduced his total compensation from $1.25 million to $500,000.
As a result of this reduction, the plaintiff registered numerous
complaints with various executives at Scotia. A number of meetings
took place between the plaintiff and various executives. Following
these meetings, the plaintiff was dismissed without cause.
The plaintiff commenced an action against Scotia Capital Inc.
claiming damages for wrongful dismissal, damages for bad faith
dismissal, and damages for loss of bonus.
The court first considered the issue of the plaintiff’s
entitlement to a bonus, and the quantum of that bonus. The judge
referred to a number of meetings which took place between the plaintiff
and his manager at Scotia. The evidence given by the plaintiff
and the manager was contradictory. The judge chose to resolve this
contradiction in favor of the defendant. He therefore rejected
the plaintiffs allegation that the significant reduction in bonus
was done in order to force him to resign, which was an indication
of bad faith. The court also rejected the plaintiff’s argument
that the defendant’s failure to disclose the discussions
of his termination was also an indication of bad faith. The judge
found that it is a normal part of the duties of senior management
to discuss poor performance of their employees without any obligation
to disclose these discussions to that employee.
It was interesting to note that the judge also took notice of
the economic climate prevailing at the time of the dismissal. The
judge accepted as a business reality that in difficult times, companies
will allocate bonuses in favor of employees it wants to retain
and will reduce the bonuses payable to those employees which it
does not mind losing. The judge finds that there is nothing sinister
or improper in such an allocation.
In determining whether the plaintiff would have been entitled to
a bonus during the notice period, the judge relied on a 2004 decision
of the Ontario Superior Court. That decision held that the process
by which a bonus is determined must be exercised in a fair and
reasonable manner based on adequate information. However, the decision-maker
setting the bonus is entitled to adjust the weight given to various
factors due to changes in market conditions. The judge in this
case found that the defendant’s bonus policy was reasonable
and was fairly administered and declined to make any award with
respect to the bonus.
Finally, in considering the appropriate amount of notice, the
trial judge rejects the notion of a twenty-four month upper limit.
However, the judge does point out that it is only in exceptional
circumstances that a notice period will exceed twenty-four months.
Given the plaintiff’s age of fifty-eight. and his thirty
years of service to the company, the judge finds that the appropriate
notice period in this case was twenty-four months.
The decision is important for the treatment of the plaintiff’s
bonus entitlement, In particular, the case highlights the importance
of having a written Bonus Pan on which the employer can rely in
defending its decision as to payment of such bonuses. Specific
legal advice should be sought in the drafting of such a Bonus Plan
If you require any assistance in this regard, please contact Earl
Altman of our office.
If you have any questions regarding the information in this Newsletter, please contact Earl Altman, or any of the other lawyers in our office@ealtman@garfinkle.com
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