Canada: Review Employment Contracts to Limit Bonus Pay-off Obligations for Employees During Notice Period

Canada: Review Employment Contracts to Limit Bonus Pay-off Obligations for Employees During Notice Period

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Canadian courts have a clear-cut view on employee bonus: if the bonus is an integral part of the compensation then employers need to pay the bonus to their employees during the notice period.  However, in a recent ruling the Canadian judiciary recognized the employer’s right to limit or prevent bonus pay obligations as long as their Employment Contract was unambiguous about the payment terms.

In Paquette v. TeraGo Networks Inc., the court reviewed if the employee (Paquette) should have received his bonus payment during his notice period even though he was relieved of duties at the time. The court ruled against Paquette because his employment contract made the bonus eligible only if the employee is “actively employed” with the organization at the date the bonus was due.

The employer was off the hook for any bonus payment as the employee was relieved of his duties and not actively employed at the time the bonus was due.

Companies with Canadian operations should incorporate unambiguous terms when launching bonus plans for 2016 to avoid unnecessary pay outs.

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