Termination in Alberta – What You Need to Know About Entitlement to Bonus and Benefits Upon Termination

When an employee is terminated without cause, determining their entitlement to bonuses, benefits, and other compensation for the notice period can become a complex legal issue.

In many cases, annual bonuses and other benefits are an integral part of an employee’s total compensation package, and these elements must be factored into any severance calculation. Let’s explore the key factors that determine entitlement to a bonus upon termination, supported by important case law.

The Role of Bonuses in Total Compensation

Bonuses are often a significant part of an employee’s total income. In cases of termination, determining whether a bonus should be included in severance calculations depends on whether it is considered an integral part of the employee’s compensation.

The Court in Wolfman v. Rocketenn-Container Canada, 2015 ONSC, outlined four key factors to consider when determining if a bonus is an essential component of an employee’s compensation:

1. The Bonus is Received Annually, Although in Varying Amounts: Bonuses that are provided regularly, even if the amounts fluctuate, may still be considered an integral part of the employee’s remuneration.
2. Bonuses are Needed to Stay Competitive: Employers may require bonuses to remain competitive in attracting and retaining employees.
3. Bonuses Have Been Historically Awarded: If bonuses have been consistently awarded in the past and the employer has not exercised discretion to withhold them, this strengthens the argument that the bonus is part of the employee’s compensation package.
4. The Bonus is a Significant Component of the Employee’s Total Compensation: If the bonus constitutes a substantial portion of the employee’s overall income, it becomes even more important when calculating severance.

Legal Precedents and Reasonable Notice

In Saalfeld v. Absolute Software Corp., 2008 BCSC, the court affirmed that an employee who is terminated without cause remains an employee until the end of the reasonable notice period.

The Supreme Court, in Matthews v. Ocean Nutrition Canada Ltd., 2020, also clarified that an employee is entitled to bonuses that they “would have received” had the employer not breached the implied term to provide reasonable notice.

Prorating the Bonus for the Notice Period

When an employee is terminated without cause, one of the key questions that arises is whether they are entitled to receive a bonus for the period they would have worked, had they been provided with reasonable notice. If an employee is terminated before the bonus is due to be paid, it is not unusual for their bonus to be prorated to reflect the portion of the year they worked prior to their termination. This concept of prorating a bonus for the notice period is an essential consideration in calculating fair severance.

The Concept of Damages for Loss of Opportunity

The wrongful dismissal claim focuses on the damages caused by the employer’s failure to provide reasonable notice, as this breached the terms of an employment contract. The claim, therefore, is not for the bonus itself, but for the lost opportunity to earn it due to the wrongful termination.

This concept of lost opportunity is central to wrongful dismissal claims involving bonuses and other benefits. Even if the employee was not yet due to receive their bonus, they are still entitled to compensation for the fact that they lost the opportunity to earn it as a result of the employer’s unlawful termination.

The legal foundation for claims based on the loss of opportunity stems from the basic principles of contract law. When an employment contract is breached by wrongful dismissal, the employee is entitled to damages as if the contract had been fulfilled. In this context, the employee is compensated not just for the salary they missed but also for the benefits, including bonuses, they were unable to earn due to the premature termination of their employment.

Conclusion

According to Hunsley v. Canadian Energy Services LP, 2020 ABQB, an employee who is terminated without cause is entitled to damages for all elements of compensation they would have earned had they worked through the notice period. This includes not only salary and benefits but also bonuses, stock options, and other incentives.

In conclusion, when employees are terminated without cause, they should receive all elements of their compensation that they would have earned had they been allowed to work through their notice period. Legal precedents support the entitlement of terminated employees to bonuses they “would have received,” ensuring that they are fairly compensated for the lost opportunity caused by the employer’s failure to provide proper notice.