Can You Still Get Your Performance Bonus If You Quit Before It's Paid To You?
Performance bonuses play a large role in compensation packages and should be considered in decisions about when to leave your current employment. If you leave after qualifying for a performance bonus but before the bonus is paid, are you legally entitled to the performance bonus?
The answer, like so many legal questions is "it depends" on the specific terms of your employment. A recent case from the Ontario Superior Court illustrates how one employee's miscalculation was a six-figure mistake.
In 1997, the employee was hired to provide financial services to physicians and their families. Over the term of his employment, he was offered a performance bonus. The bonus was calculated based on a calendar year but would be paid in three equal installments. The first installment was paid close to the time the bonus was calculated but the next two installments were paid in the next two subsequent years. For example, the bonus for 2010 would be calculated in early 2011 with the first installment payable in 2011, the second in 2012 and the third in 2013. The employee voluntarily terminated his employment in 2011 and, at the time, was owed bonuses for the previous two years in the amount of almost $115,000. Not surprisingly he sued for payment.
In determining whether the bonuses were "wages owed" the court evaluated section 11(1) and 11(5) of the Employment Standards Act to ascertain whether the bonuses were "wages earned during a pay period" or "wages to which an employee is entitled." If the bonus fell within the former category it was owed whether or not the employee was actively employed by the company but if the latter, then active employment was necessary on the date the bonus was payable. The court stated:
[101] In my view, it is the distinction between “wages earned” (section 11(1) of the ESA) and “wages to which the employee is entitled” (section 11(5) of the ESA) that permits employers to impose an active employment requirement with respect to wages other than those earned on a recurring basis. The wages to which an employee is entitled as of the date of termination of employment may be broader than wages earned during the recurring pay period in which the date of termination falls. It is pursuant to section 11(5) of the ESA, and the equivalent provisions in employment standards legislation in other provinces, that a determination is required in wrongful dismissal cases as to all forms of wages to which an employee is entitled during the reasonable notice period. To determine the wages payable may require consideration of a bonus plan, like the Plan before me, and calculation of bonus wage “entitlement” (a) based on the wording of the particular plan; and (b) during the notice period.
[102] I am satisfied that the defendants considered the wages, including bonus payments, to which the plaintiff was entitled pursuant to section 11(5) of the ESA as of the date of the plaintiff’s resignation. I find that the defendants rightfully and correctly determined that by reason of his resignation the plaintiff’s entitlement to the Bonus was extinguished.
The Lesson: It is important consider whether you will be entitled to a bonus payment prior to giving notice. Similarly, it is important to negotiate terms within your employment agreement. You should speak to an experienced employment lawyer about your employment contract both before signing it and when considering leaving. Failure to do so, can have unpleasant consequences.
Bois v MD Physician Services Inc., 2016 ONSC 8133 https://www.canlii.org/en/on/onsc/doc/2016/2016onsc8133/2016onsc8133.pdf
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