Canada’s Supreme Court Entitles Dismissed Employees to Bonuses

The Supreme Court of Canada unanimously ruled in October 2020 in favor of a former employee’s entitlement to bonus pay and other benefits after being forced out of the company.

In a landmark ruling for employment law in Canada, the highest court in the country awarded a former senior executive nearly 1.1 million Canadian dollars (approximately 829,000 USD) for the loss of a long-term incentive plan payment he would have received for loyalty and years of service, according to James Fu, an attorney with Borden Ladner Gervais in Toronto.

The Supreme Court of Canada outlined two questions that courts should ask when deciding if an employee is entitled to payment under an incentive plan:

  • Would the employee have been entitled to the bonus or benefit as part of his or her compensation during the reasonable-notice period?
  • If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common-law right?

According to the Society for Human Resources Management, Canadian employers and HR professionals should take the following steps to mitigate risk in response to the ruling:

  • Regularly review the language of termination clauses in both employment agreements and hiring letters, as well as in equity and compensation plans—including bonuses and stock options.
  • Revise employment agreements and compensation plans to reflect current case law.
  • Bring termination clauses and their impact to employees’ attention, as required.
  • Encourage independent legal advice for employees.
  • Assess whether the clauses are compatible under employment standards legislation.