Failure to pay annual bonus may be constructive dismissal

Failure to pay annual bonus may be constructive dismissal

Failure to pay annual bonus may be constructive dismissal

In Piron v. Dominion Masonry Ltd., 2013 BCCA 184 (CanLii), the British Columbia Court of Appeal held that an employer’s failure to pay a large annual bonus can amount to a constructive dismissal, despite the bonus not being a term of the written employment contract.  

Mr. James Piron (“Mr. Piron”) was a 19 year employee of Dominion Masonry Ltd. (“Dominion”).  He began his career at Dominion in 1992 as a mason and from 1995 onwards held the position of foreman. Until 2005, Mr. Piron was paid only an hourly wage for the services he provided as foreman.  However, starting in 2005, Mr. Piron’s hourly wage was supplemented by an annual bonus which was paid on a per project basis.  Generally, Mr. Piron’s bonuses ranged between $10,000 and $20,000. 

In 2011, Mr. Piron was assigned to manage two new projects.  Upon receiving his assignments, Mr. Piron repeatedly attempted to discuss the quantum of his bonus with Dominion as he had done in the past.  Mr. Piron never received a bonus. Instead, in August 2011, he was informed by Dominion that, due to deteriorating economic conditions, he would no longer receive bonus payments.  Dominion gave Mr. Piron two choices: work for his hourly wage, or find a job elsewhere.

Mr. Piron took the position that Dominion’s actions amounted to a constructive dismissal.  He argued that the employer’s unilateral decision to cease paying bonuses was a repudiation of the employment contract.

Dominion argued that the bonus was merely a discretionary Christmas bonus that the company elected on occasion to provide to employees.  Dominion insisted that the bonus did not form part of the employment contract, and as such, its decision to discontinue the bonuses during economically challenging times was not a constructive dismissal.

The British Columbia Supreme Court held that Mr. Piron had been constructively dismissed.  Grist J. decided that the bonuses “reflect[ed] the significance of the work being done and [were meant] to satisfy the senior employees so that they were content to continue their employment”.  Dominion’s financial concerns did not permit it to unilaterally and fundamentally alter the terms of employment.  Mr. Piron was awarded $106,250 in damages in lieu of notice.  The Court however refused to award damages in respect of the unpaid bonuses in the period leading up to the constructive dismissal.

Dominion appealed the decision and Mr. Piron cross-appealed on the issue of unpaid bonuses.

The Court of Appeal dismissed Dominion’s appeal, but reversed the trial decision’s finding regarding unpaid bonuses.  The Court of Appeal determined that, given Mr. Piron’s entitlement to a bonus, the trial judge erred in failing to award the unpaid bonuses prior to the constructive dismissal and through the 15 month notice period.  Mr. Piron was awarded an additional $20,000 in respect of unpaid bonuses.  The damages in relation to the notice period were also increased by $12,500.

Management should be aware of the implications of the Piron decision.  The decision confirms that an annual bonus, although not part of a written employment contract, may be considered a contractual term which cannot be unilaterally withheld by the employer, regardless of the tough economic climate that the employer is facing.

- Alex Heaslip

For more information and advice contact a Miller Thomson lawyer at: labourandemployment@millerthomson.com.