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Another reminder to document bonuses and limit termination entitlements

April 16, 2021

In an interesting recent case, an Ontario court denied a terminated employee’s claim to a pro-rated bonus but awarded him wrongful dismissal damages due to a poorly drafted termination clause.

In Ojo v Crystal Claire Cosmetics Inc., the employee alleged that, some time before his termination, his manager had advised him of a new bonus entitlement. Mr. Ojo told the court that his manager had promised him a $10,000.00 annual bonus based on reaching a specific performance target. The employer had not paid this amount upon Ojo’s termination.

The court denied this portion of Ojo’s claim. It noted that Ojo’s employment agreement was silent on the topic of a bonus payment, discretionary or otherwise, and that the court had not been provided any other written evidence of a bonus entitlement. Ojo’s former manager also denied having advised Ojo that he would be entitled to the bonus or that such a bonus existed. Furthermore, the performance target Ojo mentioned was already part of his job description, so there did not appear to be any legal consideration (that is, Ojo didn’t give the employer any new services) in exchange for the alleged new bonus entitlement.

This decision is an important reminder for employees that they should not simply rely on an employer’s word when it comes to changes to their contractual entitlements. If the employee wants to ensure that they will receive new bonuses that an employer promises to them, they should ensure that they receive written confirmation of the new bonus.

However, the case was not all good news for employers. In fact, while unsuccessful on the bonus issue, Ojo largely succeeded on the rest of his claim. Ojo’s employment contract purported to limit him to his minimum entitlements under the Employment Standards Act (“ESA”), but the judge applied the Waksdale reasoning (discussed here) to strike out the employment contract’s termination clauses because the “with cause” termination provisions were deficient.

The court also found that the contract’s “without cause” termination clause was deficient because it did not provide for the continuation of Ojo’s health benefits during the statutory notice period, as required by the ESA. The downfall of this clause appears to have been the clarifying statement, “For greater certainty, Crystal Claire’s maximum liability to you for common law notice, termination pay, severance pay, or payment in lieu of notice shall be limited to the payment of the amounts specified in the ESA.” Since the termination clause and this “clarification” were both silent on the topic of benefits continuation, the court found that they did not comply with the minimum requirements of the ESA which requires an employer to keep paying benefits. This should serve as an important lesson to employers that poorly drafted clarifying language can be just as detrimental to an employment contract as not having such language at all.

Furthermore, although Ojo had been offered a new job opportunity following his termination, the court accepted that it was reasonable for him to not accept the position which would have paid him a similar salary but would have represented a decrease in authority and a significantly longer commute to work. As a result, the court found that Ojo had not failed to mitigate his damages, and his notice period would not be reduced for not accepting the new job.

The issues raised by this case once again demonstrate why it is important for both employees and employers to have a lawyer review employment contracts and any revisions to them. The case also demonstrates that when assessing an employee’s job search efforts after termination, it is important to ensure that any new job opportunities are truly comparable to their previous position.