Termination limited to ESA minimum, plus bonus amount  

Background

The plaintiff, Ms. Shultz, was an employee of the defendant, Cleardent. On December 29, 2021 she made a PowerPoint presentation, to the directors of Cleardent suggesting that a new role be created for her within the company. The defendant struggled to respond. The plaintiff claimed that one of the directors suggested she had resigned, then suggested she be placed on leave. The plaintiff declined to be placed on leave and said that she had not resigned. It was found that the defendant’s confusion was reasonable given the circumstances.

On January 13, 2022, the defendant terminated the plaintiff on a without cause basis and advised her that she was entitled to two weeks’ notice in accordance with the employment agreement, which adopted the minimum standards in the Employment Standards Act, RSBC 1996, c 113 [the “ESA”].

At the time the plaintiff was 54 years old and earned $95,000 plus any commission or bonus she was entitled to as per her employment agreement. The defendant had proposed a bonus incentive program for the new fiscal year prior to the plaintiff’s termination, although she had not yet agreed to it.

The plaintiff sought damages for breach of contract equivalent to 14.5 months’ earnings including commission and bonuses, aggravated damages of $25,000, costs, and interest.

Issues

The main issues before the court were the following:

1. What is the appropriate notice period?

2. Should the potential bonus be included in the calculation of damages?

3. What damages is the plaintiff entitled to?

Legal test/analysis

Notice period

With respect to notice period, there was a dispute regarding the length of the plaintiff’s employment. The plaintiff had resigned from employment, and returned about one year later. The plaintiff argued that the length of service for the purpose of calculating notice ought to include her entire time working with the defendant. The defendant argued her length of service should only be from when she returned to the company because she was subject to a probationary period and had to acquire vacation days based on her new start date.

The court decided that the parties did not intend to recognize the plaintiff’s previous employment.  Therefore, her length of service was calculated from when she returned to the company in 2019.

The court then considered the applicability of the termination clause. The termination clause adopted the minimum standards in the ESA.  The plaintiff claimed it was unenforceable because her duties had changed and there was a lack of fresh consideration when the contract was signed.  The court found the termination clause was enforceable and that a salary increase of $416.66 per month was adequate consideration. The plaintiff was only entitled to two weeks pursuant to the ESA.

Bonus Entitlements

The plaintiff’s base salary was $95,000 plus bonuses. The employment agreement provided that the plaintiff was entitled to participate in the variable compensation plan.   Bonuses formed a significant portion of the plaintiff’s remuneration. The plaintiff and defendant had agreed to the plaintiff’s entitlement to the incentive bonus amounts in March 2021 for the March 2021 – July 2021 period. In 2021 she earned $30,000 in bonuses.   That year’s variable compensation plan contained a provision that if the employee was terminated, she would receive a percentage based on the target achieved prior to the termination date.

In September 2021, the parties began to negotiate the 2022 variable compensation plan, which would apply from August 1, 2021 to July 31, 2022. There was no signed agreement in place when the plaintiff was terminated.

The plaintiff argued that she should receive her retroactive bonus plus her bonus for the notice period.   The court found that the onus is on the employee to demonstrate that they would be entitled to the bonus if they worked the notice period.  Generally employees are not entitled to discretionary bonuses on termination.

The court found that a variable compensation plan was put in place by the defendant for the 2022 fiscal year, which would have applied from August 1 – December 31, 2021, even though the plaintiff attempted to challenge it.  The court held the plaintiff was entitled to a bonus, based upon the variable compensation plan that the defendant had proposed in November 2021.  This bonus plan was a flat rate of $5,000 from August 1 to October 31, 2021 and then based upon a target system from November 1, 2021 to the plaintiff’s termination on January 13, 2022.

Aggravated damages

The plaintiff alleged she was entitled to aggravated damages based upon the manner of her dismissal.   She had been terminated when she was housesitting abroad, leaving her to scramble to secure alternate medical insurance coverage, and exacerbating her known illness.  

The defendant argued they acted in good faith and that the manner of the termination did not rise to the level of aggravated damages.

The court held the defendant’s conduct did not rise to the level required to support a claim for aggravated damages.

Takeaway

Employers should use explicit language in their employment agreements and bonus policies if they want to limit an employee’s entitlement to a bonus for partial years worked and/or on termination.