Bonus

Most people whose employment is terminated without just cause, receive a severance package based on their base salary plus benefits. There are employees however, who also enjoyed bonuses, profit sharing or stock options as part of their total remuneration. What is the current position at law with respect to these additional forms of remuneration? Are they supposed to be included in the severance package or are they excluded? Here are few general principles.

The test for whether a bonus should be paid through the notice period or as part of the severance package, is whether the bonus was an integral part of the pay structure as opposed to being an "ex gratia" payment. If the bonus was an integral part of the remuneration during employment, it will generally be awarded through the notice period. A history of a bonus tends to establish that it was "integral". Even if there are as few as two consecutive bonus payments, the test may be met. The court will determine whether the bonus would have been paid through the notice period by assuming that the employer would have acted reasonably, fairly and in good faith in paying a bonus had the employee worked throughout the notice period.

As in trying to determine commission income through the notice period, courts have used various approaches to determine the amount of the bonus attributable through the notice period. Some courts use an average of the bonuses over several years next before termination. Other courts have calculated the bonus based on company performance during the notice period. Some courts have used past performance of the company and the employee during the year before termination of employment.

With respect to profit sharing or profit-participation programs, one court awarded the employee profit sharing on a pro-rata basis through the notice period even though the employee did not work a full year before termination of employment.

When determining how to treat stock options that are set to be "sold" as at the date of termination of employment, courts will often interpret that as meaning the date the employment would have been terminated lawfully. Where an employee would have been able to exercise an option had reasonable notice been given, the court will often assess and award damages based on the loss of opportunity.

If your employment has been terminated and you have questions regarding your entitlement to a severance package, please contact me to discuss your situation. Every case is different and must be considered on its own facts.