Ontario Superior Court Considers Entitlement To Discretionary Bonus During Common Law Notice Period

• Published date: 02 February 2021
• Subject Matter: Employment and HR, Employee Benefits & Compensation
• Law Firm: McCarthy Tétrault LLP
• Author: McCarthy Tétrault Employer Advisor and Meghan Hillstrom

As many of our readers are aware, the Canada Labour Code, R.S.C., 1985, c. L-2 (the "Code") governs the operations of federally regulated companies. It is not often that an Ontario court reviews the enforceability of a termination provision under the Code. Despite this, in a recent decision, the Ontario Superior Court reviewed the enforceability of a termination provision and clarified whether an employee was entitled to receive payment of a discretionary bonus following the termination of their employment.

Facts

In Sanghvi v. Norvic Shipping North America¹, the Plaintiff was employed as the Senior Vice President of Norvic Shipping North America (the "Defendant"), a federally regulated transportation company, from 2014 until 2018. His employment was subject to a written employment agreement which limited his without cause termination entitlements to one month of notice. The employment agreement also provided that the employee may be entitled to a yearly bonus, payable at the company's discretion, based upon the employee's performance and the company's overall profitability.

In February 2018, the Defendant terminated the Plaintiff's employment, without cause, as a result of an internal restructuring. In accordance with the terms of the employment agreement, the company provided the Plaintiff with a lump sum payment of one month of his salary.

Following his termination, the Plaintiff commenced an action before the Ontario Superior Court alleging that the termination clause was unenforceable. For context, the Plaintiff likely commenced his claim before the Ontario Superior Court given his managerial status. For those who are not aware, "managers" do not have access to relief under section 240 of the Code, which allows non-managers to bring their termination related claims to a federally appointed adjudicator instead of a court.

In finding that the termination provision in the Plaintiff's employment agreement was unenforceable, one of the issues for the court to consider was whether the Plaintiff was entitled to a bonus during the 8 month common law notice period. Notably, prior to the Plaintiff's termination, the Plaintiff received bonuses totaling 40% of his gross wages in 2014 and 30% of his...