HR departments can withhold bonus payments from ex-employees if an ‘active employment’ clause is included in the company’s bonus policies.
Earlier this month, in the decision in Bois v. MD Physician Services Inc, the appeals court upheld the decision of a lower court to dismiss an employee’s claim to a bonus.
The court pointed to the protections provided by a provision in the employee’s agreement.
“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”.
An ‘active employment’ clause in a bonus policy generally requires an eligible employee to be actively employed at the time a bonus is paid in order to receive that bonus.
The employee, Bois, resigned in 2011, before the pay-out dates for the final instalment of his bonuses.
The employer claimed that they were not required to pay these final instalments because Bois did not satisfy the active-employment requirement of the bonus policy. The employee brought a summary judgment motion seeking damages.
The judge found in favour of the employer for three reasons:
- The bonus policy clearly required that employees be actively employed on the date of a bonus instalment pay-out in order to receive the instalment;
- The employee had notice of the active employment requirement, and he knew or ought to have known when he resigned that he would be forfeiting entitlement to the bonus; and
- The employee’s entitlement to continued payment of the bonus was extinguished by reason of his resignation.
Writing on Lexology, Rika Sawatsky of Littler Mendelson PC cautioned HR professionals to include clearly-worded policies.
Court ruling strips power from bonus policies
How enforceable are restrictive covenants?
- Ensure that the term “active employment” is clearly worded as a requirement in the bonus policy;
- Provide employees with advance notice of the “active employment” requirement such that they know how their resignation will affect their entitlement; and
- Determine the employee’s entitlement to all wages, including bonus, at the time the employment relationship ends. Employers must calculate entitlement to the end of the applicable notice period where the employee is terminated without cause.