Dealing with Profit Sharing Bonus at Time of Termination

HRinfodesk---Canadian Payroll and Employment Law, updated April 2004

A recent Ontario Court of Appeal decision has stated that the amount of bonus payable when an employee resigns or is terminated during the year should be addressed in the written employment contract.

The case involved an employee who left employment mid-year and claimed a pro-rated share of his profit-sharing bonus. The employer refused, claiming the employee was not entitled to it because such a bonus is not calculated until year end, and, there was no policy or employment practice that stated that when an employee resigns mid-year, he or she gets a pro rated share of his or her profit sharing bonus.

The Court clarified that the precise terms of the employee’s employment contract should have determined the matter. However, in this case, the employment contract was silent regarding how the profit sharing bonus should be dealt with at termination. The Court ruled that absent of clear, well written provisions in the employment contact, the employee was correctly awarded his pro-rated share of his bonus based on the following factors:

The bonus was non-discretionary;

The employee had not been told that he would forfeit his bonus if he left mid-year; and

No business practice had been developed or worked into workplace policy that would indicate to the employee that he would not get his bonus if he left mid-year.

Employers who provide a profit sharing bonus to employees should fully address the terms of entitlement in the employment contract and/or workplace policies and procedures. Employers should clearly state in writing if the bonus is discretionary or conditional on continuous service for a full year.

For more information, go to Moore v. Thomas Fuller Construction Co. (1958) Ltd.

By Yosie Saint-Cyr, Editor at HRinfodesk

Published on HRinfodesk---Canadian Payroll and Employment Law

HRinfodesk is a service that is published by First Reference which includes legislative updates, a Library of Articles, FAQs, a Calendar of Events, Important Dates and an HR Internet Directory for expanded research. Our search tools will help you to quickly find results by jurisdiction, topic, date and keyword.

First Reference is a publisher of Canadian employment law reference manuals that are comprehensive, updated and practical.

Publications include The Human Resources Advisor, Human Resources PolicyPro and the HRinfodesk Bulletin and website.

For more information or to purchase one of our publications, go to www.firstreference.com