In many employment relationships, compensation packages extend far beyond salaries and benefits. For example, a deferred bonus is a key component of many employees’ compensation structures, as it offers an incentive for an employee’s performance and longevity with a company. However, when an employee is terminated, it may be unclear whether they are still entitled to their deferred bonus. Therefore, employees and employers need to understand the intricacies of such entitlements at the time of termination.

Whether you are an employer seeking clarity on bonus obligations or an employee navigating the end of your employment relationship, this blog will explore the factors determining whether departing employees are eligible to claim these deferred rewards in light of a recent decision from the Alberta Court of King’s Bench.

Legislative Entitlements Upon Termination of Employment

In Alberta, the Employment Standards Code is a vital framework governing employers’ and employees’ rights and obligations. Of particular relevance, this legislation provides an employee’s minimum entitlements upon termination. The Code outlines specific provisions to ensure fairness and protection for workers regarding payment of earnings, which may include unpaid wages and bonuses, upon termination of employment. 

The legislation does not mandate specific rules regarding the timing or structure of bonus payments, leaving room for negotiation and alternative agreements between employers and employees. However, despite having a deferral agreement in place, an employee may still be entitled to payment of a deferred bonus upon the termination of their employment, regardless of whether the triggering event has occurred. 

Court Emphasizes Importance of Minimum Employee Entitlements Under the Provincial Employment Standards Code

The recent case of Challis v Maverick Oilfield Services dealt with issues surrounding minimum entitlements upon termination and contemplating whether an employer can exercise discretion regarding deferred bonus payments. 

Plaintiff Employed as CEO Without Signed Employment Contract

The employee was employed by the defendant employer as its Chief Executive Officer from June 25, 2012, until he resigned on May 31, 2018. When he started his employment, the parties had no written employment agreement. The terms of the relationship were based on an oral agreement that was reduced to a draft contract. However, it was never signed. 

Employer Refuses to Pay Deferred Portion of Bonus

A written contract was eventually signed in 2017 with a clause providing severance for $200,000 if the employee ceased working for the employer for any reason, including his resignation or termination for cause. However, the employer argued that the severance terms were not agreed to and “out not to have been included in the agreement.” 

In 2015, the employer declared a bonus for its executives, which included the employee. One-half of the bonus was paid to employees when announced, with the other half deferred. However, when the employee resigned, the employer refused to pay the deferred portion of his bonus. 

In response, the employee sought summary judgment for payment of severance along with payment of the deferred portion of his bonus of $26,442.31. The application judge granted summary judgment for the deferred portion of the bonus but dismissed the application for summary judgment of the severance. The employer appealed this decision. 

Bonus Recipients Agree to Defer Half of Bonus Payment

When the matter came before the Court, it was noted that there was no dispute that the employer declared a bonus for a group of executives in December 2015. After this was declared, the bonus was payable to each recipient as a part of their accrued earnings. The Court affirmed that there was no dispute that the recipients agreed to defer one-half of their bonus until the company’s financial situation improved. Although the deferral agreement was the same for all recipients, the employer’s financial position did not improve to the point of triggering the deferred bonus.  

The employee argued that it was understood that if an employee left the company before the triggering event for payment occurred, the deferred portion would be paid out when their employment ceased. It was also acknowledged that all other bonus recipients whose employers were no longer employed were paid the deferred portion of their bonus. 

Payment of Bonus Not Discretionary 

While the employer claimed that the payouts to other departed employees were an exercise of its discretion, the Court found no evidence to support this argument. The Court found that the employer was not exercising its discretion when it paid out other recipients based on the fact that the response from the employer’s owner to the employee was “strongly indicative of an understanding on his part that the deferred portion of [the employee’s] bonus was payable given that [the employee’s] employment had ended. 

Furthermore, section 8(2) of the Employment Standards Code “requires an employer to pay an employee’s earnings within 10 days of the end of the pay period in which the termination of employment occurs or 31 days after the employee’s last day of employment.” Thus, once the employer declared the bonus, payment of the bonus to the employee was no longer discretionary. 

Employer’s Appeal Dismissed by Court

While the Court noted a factual dispute regarding the terms of the deferral agreement between the parties, this dispute did not raise a triable issue. After considering the correspondence between the employer’s owner and the employee, the minimum entitlements under the Employment Standards Code, and the treatment of other bonus recipients, the Court concluded that the deferral agreement contained a term that provided for a recipient to be paid their deferred portion of the bonus at the time their employment ended. 

Accordingly, the Court dismissed the employer’s appeal. 

This decision highlights the importance of the minimums provided for employees under the provincial Employment Standards Code and reminds employers that once a bonus is declared, payment is no longer discretionary. 

Contact Getz Collins and Associates in Calgary and Strathmore for Practical Advice on Entitlements and Obligations Upon Termination

At Getz Collins and Associates, our skilled employment and labour lawyers advise both employees and employers on complex employment law matters, including employment standards disputes, wrongful termination claims, and employee terminations. Our employment law team strongly advocates on behalf of our clients and explores possible avenues for dispute resolution. If litigation is necessary, our litigation lawyers provide exceptional representation while protecting your best interests. To speak with a member of our team regarding your employment law matter, contact us online or call our offices at (587) 391-5600 to learn how we can assist you.