Terminated without notice: are discretionary bonuses part of the severance package?

| August 15th, 2017 | No Comments »

Bonuses may make up a significant portion of pay for executives, senior managers, and other high skilled employees. Upon termination of the employment relation, notice or pay in lieu is meant to place an individual in a similar place had they not been terminated. Pay in lieu is refereed to as ‘notice pay’. Notice pay is how the courts determine the amount of pay in damages that an employee that was denied reasonable notice is owed. Consistent with this principle, discretionary bonuses may need to be included in an employee’s a severance when choosing no to give notice of termination.

Discretionary Bonuses

A discretionary bonus, by definition, is awarded at the employer’s will without objective criteria. When included in an employment contract, discretionary bonus will clearly specify that the bonus is solely to the determination of the employer and may or may not be granted. Employers often will argue that since the bonus is discretionary, it should not have to be included in notice pay. However, there are scenarios where discretionary bonuses will be included as damages by the courts when assessing the amount of notice pay the employee is owed.

Discretionary Bonuses and Notice Pay

When the employee has been with the employer for many years and the bonus was paid regularly, it is likely to be included in the notice pay, especially if it composed a significant portion of the employee’s total compensation. The less often and regular the bonus was paid, the greater the chance the bonus will not be included in the notice pay. Further, courts have also determined that if current employees of a similar position and status receive a discretionary bonus, the terminated employee must also receive the payment of the discretionary bonus in their notice pay.

Final Remarks

Overall, it is important for the discretionary bonus clause to be unambiguous because any difficulty in interpretation will fall in the employee’s favour. In addition, where the bonus is labeled as discretionary in the employment contract, but in practice is subjected to objective criteria, the courts will not view this as discretionary. When dealing with executive type compensation, properly drafted contracts and practices are very important. What was initially thought to be an agreed upon contact may end up being very costly for an employer. it is advisable to seek legal expertise when drafting contracts that seek to define the limits of severance payment with regards to discretionary bonuses.

Where is the line between being a contractor versus an employee?

| September 12th, 2012 | 1 Comment »

Daniel Lublin, Toronto Employment Lawyer clarified the distinction between a contractor and an employee in his latest article My job’s in jeopardy and I’m treated as a contractor. What can I do? published in the Globe and Mail.  The distinction between independent contractor and employee is critical as getting it wrong can cost both parties.

In order to determine whether a worker is a contractor or an employee, courts will look at how the individual and the employee behaved; not only what was agreed to in writing.  A written contractor agreement or letter of understanding will not, by itself, mean an individual is truly a contractor or an employee.

There are different tests to establish when a worker is a contractor or an employee, but most commonly asked questions can be found in Daniel’s latest article.

Our lawyers are skilled in drafting independent contractor agreements and providing strategic advice on how to structure the relationship.  If you want to employ or be employed as a contractor, then do as follows:

Ensure that there is a clear separation between the employer’s business and the contractor.  Permit the contractor to perform services for others and to maintain genuine discretion over how and when the job is performed.  Even an airtight independent contractor agreement will not be reliable unless the parties stick to what it says.

With Low Cost Comes Great Responsibility

| April 9th, 2011 | No Comments »

To steer clear of danger, a general rule of thumb most consumers adhere to is the belief that when something seems too good to be true, it usually is.  In the article, “It’s buyer beware for online legal services” Daniel Lublin writes about a couple who learned this lesson the hard way when they purchased an online “contract” for a discounted price.

After purchasing what they believed was a temporary contractor agreement, the couple had it printed and signed by the worker.  Six months later when all of the work had been completed, they were surprised when the contractor demanded payment for the remaining 6 months of the year.  Why?  The contract they had purchased was for a defined period and it lacked an early termination clause – something that Lublin says “most employment lawyers should spot as a matter of course”.  As is often the case with a “good deal”, rather than save a few dollars, the couple ended up paying a lot more than they bargained for.

Online lawyers might argue that a part of the purchase entails a responsibility on the part of the buyer to be well-informed about the product.  Although there may be a demographic that fits this target market, it is unrealistic to expect a client to know the particulars of employment law.

Individuals considering the purchase of online legal services should be aware of the risk they run in abnegating legal consultation.  Consider saving yourself the uncertainty and remember that “people often get exactly what they pay for.”

Contractual Relativism?

| March 1st, 2011 | No Comments »

In the ever-changing field of employment law, the question often arises as to what exactly makes a contract enforceable when the courts often strike them down anyways.  According to Daniel Lublin, “The answer depends on the purpose the contract is meant to serve.”

In an article written last week in the Metro, Lublin reviews four specific examples and offers the following advice on them:

Independent contractor agreements: When the distinction between employee and sub-contractor becomes hazy, remember, it’s “not what a contract says but how the parties behave.” 

Post-employment restrictions:  Avoid the “kitchen sink approach”; homogenous clauses that bargain for more when less would suffice are often not enforced.  

Policy manuals: Be careful when using policy as a defence when terminations are challenged.  Consider the circumstances and then decide whether the policy still seems reasonable.

Termination clauses: Avoid ambiguity and respect statutory standards.

To increase the effectiveness of employment contracts consider the following:

  • Employment law is not static.    
  • Courts will consider how reasonable contractual obligations are given the circumstances.  If you are unable to do so unbiased, ask a neutral third party for advice.     
  • Be as job-specific as possible and avoid the lazy, “kitchen sink approach”.

Overall, remember it’s not always what you sign, it’s what you do.

Drafting Employment Contracts

| April 30th, 2010 | No Comments »

Employers often take a kitchen sink approach to drafting employment contracts. They bargain for excessive protection, no matter how junior or administrative the employee. However, in seeking such protection, they sometimes get none at all.

The key to drafting enforceable contracts is simplicity and consistency with the law.  For example, a severance clause that permits termination upon payment of 30 days would be considered illegal because the legislation in Ontario (and most other provinces) requires up to 8 weeks notice to terminate an employee without cause.

Similarly, there is no “right” to probation periods unless this is something that was agreed to and even then the clause will be only work if it precludes payment in excess of the statutory minimum.

Click here to read Daniel A. Lublin’s Metro article where he reviews probationary periods, severance provisions, constructive dismissal, policy manuals, resignations and restrictive covenants.

Daniel A. Lublin is a partner with Whitten & Lublin LLP, which is a team of legal experts who provide practice advice and advocacy for workplace issues.  Dan can be reached at dan@toronto-employmentlawyer.com.

Resignations: intention to leave must be “unmistakable”

| April 14th, 2010 | 1 Comment »

A true resignation is a voluntary action.  Plain and simple.

Although there may be an intention to leave, courts will not construe that intention as a “resignation” unless it is acted upon and is unmistakable.

Another recent example is found in an Ontario case called Carmichael and Mantis Racing Inc, which can be read in full here.

Stan Carmichael and Ernie Jakubowski were friends with a common interest – both were Porsche aficionados. When Carmichael found himself without work, Jakubowski, the owner of Mantis Racing Inc., a high-end automotive shop involved in racing events throughout North-America, saw the potential to grow his business.

Over beers and a handshake, the two friends agreed that Carmichael would become Mantis’ new general manager.  However, their relationship would soon sour, resulting in a lawsuit for wrongful dismissal and an allegation that Carmichael resigned.

Carmichael won the case.  The Judge was not impressed with Mantis, its lawyer, or its defence.

Often, employees find themselves in the “twilight zone,” somewhere between wanting to leave and having been fired.  For employees that want to avoid being characterized as resigning, they should follow these guidelines:

  • Resist taking any steps that can be construed as voluntarily withdrawing from the workplace, as difficult as that may be.
  • Immediately protest a characterization that there has been a resignation, if it wasn’t the intended result.
  • If unclear, request that your options be outlined in writing and seek specialized advice before taking any action.

– Daniel A. Lublin is a partner with the the employment law firm Whitten & Lublin LLP. Reach him at dan@toronto-employmentlawyer.com.