OCA Invalidates ESA Termination Clause due to Lack of Benefits :
In Hampton Securities v Dean ( 2018 ONCA 901) the Ontario Court of Appeal was called upon to determine the validity of the following clause :
In the event Hampton wishes to terminate your employment without cause they may do so by paying you the minimum amounts required pursuant to the Employment Standards Act of Ontario in force at the time of termination; no further compensation shall or will be provided. You agree by signing this agreement that such amounts are the total compensation you will receive if terminated without cause.
Both the trial judge and the Court of Appeal held that this clause was illegal because it excluded benefit continuation for the ESA termination period, which in this case was only 2 weeks .
It rejected the Employer's argument that the words " by paying you the minimum amounts required pursuant to the Employment Standards Act " included benefits.
On this point the Court said:
106 The obligation Hampton has imposed on itself is to "pay you", that is to say to pay Ms. Dean. Benefits are not paid to employees. They are paid to benefit plans. Even if Hampton purported to fulfil its obligations by paying Ms. Dean the equivalent of the contribution that Hampton would ordinarily have made to a benefit plan, that does not comply with section 60(1)(c) of the ESA. The statute clearly requires that the employer continue to make contributions to benefit plans during the notice period. Hampton's obligation under the employment contract is only to make payments to Ms. Dean.
107 As in Wood, the provision in the employment agreement to the effect that "no further compensation shall or will be provided" excludes contributions to benefit plans. The contrast between the language "paying you" and "no further compensation shall be provided" is telling. The first phrase, refers to payments to Ms. Dean. The second phrase is more broadly worded and captures within its ambit, payments to parties other than Ms. Dean, such as payments to benefit plans.
108 As both the Court of Appeal noted in Wood and the Supreme Court of Canada noted in Machtinger, only a clearly worded termination clause will rebut the presumption of reasonable notice. Even if Hampton now wanted to argue that the contract obliged it to continue making payments to benefit plans during the statutory notice period, that would not assist. The analysis is to be conducted based on the language of the employment agreement at the inception of employment, and not based on the interpretation the employer wants to apply after litigation has arisen when it has an interest in interpreting the clause more generously in order to avoid common law notice requirements.
Bonus Payout Owing After Resignation is Properly Forfeited says Ontario CA:
In Bois v MD Physician Services ( 2017 ONCA 857) the Plaintiff had received a bonus entitlement that was to be paid out over the following 3 years. He quit before the 3 years was up but claimed immediate entitlement to the unpaid bonus.
His bonus plan read as follows:
In the event a Participant's continuous Active Employment terminates, either voluntarily or involuntarily and whether for cause or not for cause, the Participant will immediately forfeit any entitlement to any payments under this plan whether attributable to prior years or to the current year.
In any given year, you must be a permanent employee of the CMAH Group of Companies on December 31 of the year for which the incentive is paid and continue to be so employed on the payment date(s) to receive a payment. 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.
The Plaintiff relied upon Sections 11(5) and 13(1) of the Employment Standards Act, 2000 to say that since he had already earned the bonus, it could never be forfeited and should be paid within 7 days of his resignation.
11(5) If an employee's employment ends, the employer shall pay any wages to which the employee is entitled to the employee not later than the later of,
(a) seven days after the employment ends; and
(b) the day that would have been the employee's next pay day.
13(1) An employer shall not withhold wages payable to an employee, make a deduction from an employee's wages or cause the employee to return his or her wages to the employer unless authorized to do so under this section.
Both the trial judge and the Court of Appeal disagreed with the plaintiff's position. Section 1 of the ESA clearly defines wages as including certain types of bonuses. So the bonus money was wages. However both Courts focused on the the words " wages to which the employee is entitled to".
This is what the CA said:
15 It was open to the parties to agree how and when any bonus was declared, earned, accrued and would be payable: Kielb v. National Money Mart Co., 2017 ONCA 356 (Ont. C.A.), at para. 12.
16 By the terms of the VIPs, the appellant was not entitled to the three bonus installments whose pay-out dates fell well after the date of his resignation. While those three installments would constitute wages payable upon each of the future pay-out dates, they were not "wages to which the appellant [was] entitled" when he resigned and his employment ended. Accordingly, we see no basis to interfere with the motion judge's conclusion that where, as in circumstances such as those of the present case, the entitlement to an incentive plan payment does not arise until after an employee's resignation or the expiration of the reasonable period of notice of termination, a plan's requirement that the employee be actively employed at the time of a future pay-out does not contravene s. 11(5) of the ESA.
17 Nor does such an active employment provision contravene s. 13(1) of the ESA, as the future pay-outs do not constitute "wages payable to an employee" at the time of his resignation.
I find the comments in paragraphs 15 and 17 problematic as it implies that the parties can determine when a wage is earned or entitled, no matter how that private definition differs from the common understanding of that term. The term in the ESA is " wages to which the employee is entitled" . This does not mean that they are owing on that date, only that on some later date they will become owing.
Words in a statute are to be interpreted in accordance with their common meaning, and parties cannot contract out of a statute by redefining a statutory term to suit their individual needs.
Imagine this provision in an employment contract:
You will be paid an annual wage of $100,000 by way of a single payment on December 31st. If you are not actively employed on December 31st, you will not be eligible to be paid this amount or any part of this amount, other than the minimum wage under the ESA for the time actually worked.
No one would seriously disagree that the employee "earned " his wage on a daily basis but has simply agreed to defer payment to a later date. It seems absurd that this employee could work until December 25th, then quit and only get the minimum wage. But that is exactly what the Court is saying is OK.
Section 11 of the ESA only requires that an employee be paid on a recurring basis, not that the recurring basis be any minimum or maximum period. Thus it would not disallow a yearly lump sum salary.
There is a fundamental difference between when I earn a wage and when I can demand that I be paid that wage. If the Plaintiff had resigned, then simply waited until after the next payment was due before suing, how could the Court find that his wages were not due at that time?
In addition the same Court of Appeal has said in a previous case that the term "active employment " in a bonus agreement does not negate the concept of reasonable notice ( Pacquette v TeraGo Networks ( 2016 ONCA 618 ). Why is that the same clause used in this case has the effect of legalizing a forfeiture of an earned wage?
Moreover the clause itself violates the ESA in that it purports to immediately forfeit the future bonus payment ( which the Court found was a wage under the ESA) even where an the termination is without cause or where the employee simply has given notice of resignation but is still working for the employer. Now in this case the Plaintiff resigned and was not terminated, but still, if part of an contract provision is illegal, the whole clause is illegal, said the same Court of Appeal in North v Metaswitch Networks Corp, (2017 ONCA 790).
Perhaps the Court of Appeal realized that if the Plaintiff was correct, then employers would virtually never be able to deny earned bonuses to dismissed employees whatever the language of the bonus plan was, as that would constitute a illegal withholding of wages, contrary to Section 13(1) of the ESA.
Perhaps that was " a bridge too far " for the Court.