The Power of a Well-Written Bonus Plan: Bois v. MD Physician Services

By Richard Johnson.

Richard Kent Employment Law Advocate Daily

A recent decision from the Ontario Supreme Court of Justice serves as a strong reminder to both employers and employees about the importance of well-drafted written employment terms. The terms at issue in Bois v. MD Physician Services Inc. related to the plaintiff’s bonus, and meant the difference between a significant incentive payment and a handshake when the plaintiff left his job.

Key Facts

Mr. Bois worked for the defendant first as a Financial Consultant, and eventually as an Investment Counsellor. His compensation plan included incentive bonuses which were based on annual performance.

Put simply, the terms of the bonus plan (the Variable Incentive Plan, or VIP) in place when Mr. Bois resigned were as follows:

  • An employee’s entitlement to a bonus depended on his performance over the previous calendar year. For example, Mr. Bois was entitled to a bonus for 2009 based on his 2009 performance.
  • A bonus was payable in three equal annual instalments following the year for which it was earned. Thus, Mr. Bois’ 2009 bonus was payable over three years, in February / March of each of 2010, 2011 and 2012.

The VIP, introduced approximately 10 years into Mr. Bois’ employment, specifically stated the following (emphasis added):

The incentive award, if any, shall be awarded and paid only during the period of the participant’s Continuous Active Employment and the award has been granted as an inducement for the participant to remain in such Continuous Active Employment and as an incentive for increased efforts on behalf of MDF by the participant during the period of his/her Continuous Active Employment.

When Mr. Bois received a promotion roughly three years later, he was advised that his VIP eligibility would “remain unaffected” and received a letter that stated (emphasis added):

All incentive and VIP payments are made in February and/or March following the calendar year to which they apply.  In any given year, you must be a permanent employee of the CMAH Group of Companies on December 31 of the year for which the incentive is paid and continue to be so employed on the payment date(s) to receive a payment.  Any employee who is no longer employed with the organization or has given notice of termination prior to the payout date will not be eligible to receive a payment.

(A new VIP was introduced in 2011, but did not apply to Mr. Bois’ 2009 and 2010 bonuses.)

After over 14 years of employment, Mr. Bois resigned in October 2011. At the time of his resignation, there remained $114,916.79 in unpaid, approved bonuses that Mr. Bois had earned for 2009 and 2010.

The Litigation

After quitting, Mr. Bois sued his former employer for the unpaid bonuses.

Despite Mr. Bois’ clear entitlement to bonuses exceeding $100K, the Court denied his claim on the basis that he had resigned prior to the payment date(s) for the bonus amounts (which under the payment schedule would be February / March of 2012 and 2013).

In other words, the Court enforced the terms of the VIP and the requirement that Mr. Bois be actively employed on the relevant bonus payment date in order to receive the bonus. Since he was told by the employer in 2007, 2010 and 2011 about the “active employment” requirement, Mr. Bois knew or ought to have known that by resigning, he was forfeiting his bonus entitlement. Although it didn’t apply in the circumstances, the Court noted that even the 2011 VIP plan was “clear and unambiguous in identifying the active employment requirement”.

Mr. Bois also argued that he was entitled to the bonus amounts under the Employment Standards Act since they were “wages” under that Act.  However, the Court rejected this argument, and held that an employer is entitled to impose the requirement that employees be actively employed at the time bonuses are paid because bonuses are not regularly scheduled wage payments.

Takeaway

The Bois decision offers important takeaways for employers and employees both:

  1. Employers – Ensure that the terms of your incentive programs are set out in writing, clear and unambiguous, and brought to the attention of all employees.
  2. Employees – Look before you leap. Before you decide to leave your job, review the terms of your compensation plan carefully so that you are fully aware of any amounts (or stock options, etc.) that you may give up by resigning.

Sustainable Employment Sidebar

One final note for employers, from the perspective of creating sustainable employment practices:

When crafting your employees’ compensation arrangements, consider keeping performance awards separate from retention inducements. By combining the two, you send a mixed message to your employees, begging the question, Is the bonus designed to reward the quality or the quantity of the employee’s service?

For more on sustainable employment and the advantages of transparent, fair and respectful workplace practices, click here.

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