Unpaid Bonus Limitations – some thoughts…

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Our client had been employed over a few years by a successful family operated business.  Notwithstanding that his compensation consisted of a base salary and large potential bonus, he did not receive bonuses on the level that he anticipated.

Our client did not receive anything in writing from the employer that would allow our client to determine the entitlement to a bonus or how bonuses were being calculated by the employer during his employment or after.

Our client was ultimately terminated without cause.

On bringing claim for the unpaid bonuses and wrongful dismissal, the employer brought a motion seeking to have a portion of our client’s claim for unpaid bonuses dismissed as falling outside the two (2) year limitation period.

The employer’s position was that because the claim was brought more than two (2) years after the date on which the bonus payments ought to have been made, the claim was out of time.

While we brought forward a number of factual issues that we believed made the employer’s position untenable (including the lack of clarity as to when the bonuses ought to have been paid, fraudulent concealment etc.), in our analysis of the case we were immediately struck by how these same facts would have supported a claim for constructive dismissal had the employer not ultimately terminated our client.

Any lawyer consulted with an unpaid bonus situation akin to this one (prior to the ultimate termination) would have likely advised the client of the ins and outs of the law of constructive dismissal, with the usual warning that such claims are very difficult to establish.

However, in examining the caselaw on unpaid bonuses it was interesting that almost all of the jurisprudence were in the context of constructive dismissal claims [Ilkay v. Acadia Motors Ltd., (2006), 276 D.L.R. (4th) 762 (N.B.C.A), Piron v. Dominion Masonry Ltd., 2013 BCCA 184 (CanLII), Landry v. 1292024 Ontario Inc., (2006) O.J. No. 1832 (Ont.S.C.J.].

Further, we understood that the limitation period for a constructive dismissal claim runs, not from the independent act(s) of repudiation by the employer, but rather on acceptance of the repudiation by the employee and their departure from the relationship

In light of this, it became immediately apparent that the employer’s intent to apply a two (2) year limitation period from the point that each individual bonus payment was not made would be manifestly unfair if a different result would be available to our client if the claim was one of constructive dismissal (ie. without an overt termination by the employer).

Using this approach we successfully persuaded the motions judge, and ultimately the Divisional Court on appeal, that consistency and fairness required that our client’s claim for bonuses unpaid potentially more than two (2) years prior to the claim should not be found to be outside the limitation period.

While it may very well be that this approach is ultimately not favoured at trial, in the context of a summary judgment motion and motion seeking leave to appeal, we managed to enlist support for what we believed to be the proper approach on these claims.

D. Jared Brown – Lead Counsel

Owed Unpaid Bonuses? Its Not Too Late For A Lawsuit

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Maybe you didn’t know you were entitled to a bonus. Maybe you didn’t want to have that potentially career killing conversation with your employer. These are just two of the reasons why you may not have pursued unpaid bonus amounts owing to you.

But how long is too long to wait? The Limitations Act, 2002 generally requires that you sue within two (2) years of discovering a claim. Does this mean you can’t recover against a current or former employer for bonuses you should have received more than two (2) years ago? Not necessarily.

In a recent motion before the Ontario Superior Court of Justice (leave to appeal denied by the Divisional Court), Brown Litigation persuaded the court not to dismiss our client’s claims for bonuses payable more than two (2) years before the start of the lawsuit. In agreeing to postpone the determination of the limitation period to trial, the court found the limitation period had not clearly expired and relied on the following cases:

Saltsov v. Rolnick[i] – The Limitation Period May Not Commence Until Resignation or Termination

In Saltsov, the court acknowledged that employees could not reasonably be expected to sue their employers while still employed with them, as doing so would negatively impact their employment.

The motion judge in our client’s case applied the law in Saltsov and stated that “it would have been neither workable nor fair to expect [our client] to have jeopardized his job by suing for bonus while still actively employed at [his company].” According to Saltsov, the limitation period for your unpaid bonus claims may be deemed to have commenced not when the bonuses were payable, but rather on the date of your resignation or termination.

Novak v. Bond[ii] – The Court Will Take Individual Circumstances into Account

The Supreme Court of Canada confirmed in Novak that individual circumstances can be considered in determining when a plaintiff should have known to sue. The court stated that, “in some cases, the plaintiff’s own circumstances and interests may be so compelling that it cannot be reasonably said that he or she could bring an action within the prescribed time period,” also noting that “people ought to be encouraged to take steps short of litigation to deal with their problems,” and “they should not be compelled to sue when to do so runs counter to a vital interest.”

The motion judge in our client’s case considered Novak in light of our client’s position as an employee of the defendant, and stated that “an employee is in a vulnerable situation and entitled to a subjective appreciation of his circumstances in connection with understanding his realistic and reasonable alternatives in responding to conduct and decisions affecting him or her.” Novak mirrors section 5(1)(b) of our Limitations Act, 2002, and the court accepted that our client may not have personally discovered that a claim was necessary to collect the bonuses.

Halloran v. Sargeant[iii] – Fraudulent Concealment Precludes a Limitation Defence

It is well established at law that defendants cannot rely on the limitation defence where they have engaged in fraudulent concealment. In Halloran, the court ruled that an employee’s claim for termination pay was not out of time due to fraudulent concealment on the part of his employer. The employer failed to advise the employee of certain key facts. It was stated that acts amounting to fraudulent concealment may be as minimal as “a mere failure to inform.”

The motion judge in our client’s case cited Halloran in concluding that our client’s employer had engaged in fraudulent concealment by failing to provide sales figures that our client needed to determine and calculate his potential bonus entitlement. It follows from this decision that if the information necessary to determine your bonus entitlement was not made available to you by your employer, the limitation period may not apply to your unpaid bonus amounts.

Final Thoughts

When it comes to a claim for unpaid bonuses, while you should always be encouraged to bring forward known claims in a timely manner, there are certain exceptions to the usual two (2) year limitation period. Whatever your situation may be, don’t assume it’s too late to sue for the bonus amounts owing to you, consult legal counsel.

Confidentiality in Employment Settlements

It is typical in most settlements of employment disputes for the employer to request, and the employee to agree, to provide a confidentiality provision with respect to the settlement.

Typically these clauses prohibit the employee from disclosing the details of the settlement to any third party (spouse, financial and legal advisors excepted).

Some clauses stipulate that the fact that the matter settled may be disclosed but nothing else.

Other clauses contain an explicit penalty provision that permits a clawback or forfeiture of settlement funds if a breach.

The rationale for these clauses is quite simple.  An employer in resolving a dispute has an interest in ensuring that a settlement of a dispute does not create a “shark effect” of future claimants coming forward with the mistaken notion that the employer will settle any dispute.  In most respects, it is the confidentiality clause that the employer is paying for as much as avoiding the time and cost of a trial.  A trial would be a public proceeding whereas a settlement affords the employer the opportunity to control disclosure.

The Toronto Star recently reported on the decision of a Labour Relations Arbitrator  that found that an employee should forfeit the financial remedy received on a successful grievance on account of the employee’s breach of the confidentiality provision.

Interestingly, the employee in question did not sign the settlement agreement or the confidentiality provision.  The grievance having been handled by the employee’s union and as is apparent from the article against the desires of the employee to have an airing of the grievance in a hearing.

We encounter many employee clients who, whether on account of emotion or bad feelings, actually would prefer to have a public airing of their issues with the employer in court for the world to witness, rather than a strictly monetary resolution of the claim.

Similarly, we encounter may employees who are part of a bargaining unit/union, and find that the union is not representing their interests in the way in which they may have expected.

We strive to meet the client’s objectives in any employment matter, however, it is our duty to properly inform the client on what reasonable objectives are attainable from the outset.  Conducting a trial or hearing simply for the purpose of broadcasting a complaint to the public ignores the fact that our civil court system is designed primarily to grant monetary remedies for wrongs.  Clients seeking publicity are best to achieve this objective through the media, rather than a costly and less than ideal court process.

Confidentiality provisions, properly negotiated, and agreed to by the parties are enforceable, and should be treated as such following conclusion of the settlement.

D. Jared Brown – Lead Counsel

Employer assistance for the terminated employee (Mitigation)

Mitigation is a two-way street.  While we have discussed in a previous blog post the employee’s duty to mitigate when terminated, the duty to mitigate is a concept that should resonate with employers as well.

While most employers want to use an employee’s apparent failure to take reasonable steps to find alternative employment post-termination as a defence to a wrongful dismissal claim, prudent employers recognize that assisting employees to mitigate can reduce the overall risks associated with wrongful dismissal claims.

When representing employers who have made the decision to terminate an individual, we typically recommend offering post-employment support and outreach to the employee to assist the employee in their mitigation efforts.  Offering services such as outplacement counseling to the departed employee ensures that the employee begins the job search in a timely way, and further has all necessary tools and skills to ensure a successful job search.      As mitigation earnings can set off against entitlements to reasonable notice, timely re-employment (particularly during any period of reasonable notice) ensures cost and risk containment for the employer.

Further, offering post-employment assistance to transitioning employees evidences an employer acting in good faith during the termination process, with due regard to the sensitivities and issues inherent in an employee termination.

In certain situations, it may be appropriate for the employer to offer a new position in the organization to the departing employee either in a different department or geographic region.  In some court cases, the employee’s failure to accept a reasonable offer of alternative employment from the same employer, was ruled to be an unreasonable rejection of an opportunity to mitigate by the departing employee thereby reducing the employee’s entitlement to reasonable notice.

Whether these employer strategies (and the myriad of others available) are appropriate depend upon the circumstances in each case, including the employee in question, the personal relationships at stake, and the anticipated duration of the notice entitlement.

Posted by D. Jared Brown – Lead Counsel

Fired? Get a Job!

If you have been dismissed from your job, there is a duty in contract law which states that you have an obligation to mitigate your damages.  This doctrine means that a dismissed employee must take steps to minimize the losses they suffered as a result of losing their job.  Basically, this means that you need to take steps to look for another job.

The leading case on the duty to mitigate is the Supreme Court of Canada decision of Red Deer College v. Michaels.  In this case, the Supreme Court explained the duty to mitigate as follows:

The primary rule in breach of contract cases, that a wronged plaintiff is entitled to be put in as good a position as he would have been in if there had been proper performance by the defendant, is subject to the qualification that the defendant cannot be called upon to pay for avoidable losses which would result in an increase in the quantum of damages payable to the plaintiff.  There reference in the case law to a “duty” to mitigate should be understood in this sense.

The Court held that the burden is on the defendant to provide proof that the plaintiff failed to mitigate her/her damages:

It seems to be the generally accepted rule that the burden of proof is upon the defendant to show that the plaintiff either found, or, by the exercise of proper industry in the search, could have procured other employment of an approximately similar kind reasonably adapted to his abilities, and that in absence of such proof the plaintiff is entitled to recover the salary fixed by contract.

The Court went on to emphasize that the onus on the employer is heavy, citing a previous decision, because “the burden which lies on the defendant of proving that the plaintiff has failed in his duty of mitigation is by no means a light one, for this is a case where a party already in breach of a contract demands positive action from one who is often innocent of blame.”

Despite the burden being on the defendant to show that efforts were made, plaintiffs have been criticized by the courts for not making enough of an effort. In Chambers v. Axia Netmedia Corp., it was held:

Clearly, the efforts of Mr. Chambers [the plaintiff] were to a large extent confined to reading the local newspaper and forwarding his resume to employers. Although commendable, I am satisfied, by restricting his search to this one vehicle, the effort was too limited. Although there is no evidence as to whether these other efforts would necessarily have produced a positive result, earlier than he was able to find the employment he did, I am satisfied there was, to some extent at least, a failure to take all reasonable steps to mitigate

There are simple steps that a plaintiff can take to demonstrate that they attempted to mitigate their damages in an attempt to avoid an adverse decision like the one in Chambers.  We counsel our clients to keep a running log or mitigation journal outlining all the key events, dates, and information related to their job search post-termination including identifying job search efforts, networking, applications, and other career building steps.  This is typically done in the form of a diary or a calendar.  Second, retain copies of the letters, emails, or any other correspondence you sent in an attempt to secure a position.  Third, diversify your search.  You don’t need to limit to just one means.  You could add yourself to the social networking site LinkedIn, search on websites such as Workopolis, scan the newspapers and attend local networking events in your city.  Further, Human Resources Development Canada (“HRDC”) offers a range of free networking, job search, and outplacement services for qualifying dismissed individuals.  All of these steps will assist you in demonstrating that a genuine effort was made to secure new employment.

Posted by D. Jared Brown – Lead Counsel

Employee Non-Competition and Non-Solicitation Covenants: Where are we at?

The departure of an employee from a business can result in harm to the business when that former employee begins to either compete and/or approach the customers and contacts of the business with an eye to securing the business relationships for themselves.

Many employers have developed contracts which contain post employment covenants on the part of the employee, whereby the employer attempts to secure the employees agreement to refrain from competing against and/or soliciting the employer’s customers for a period of time post-departure.

The Canadian courts have repeatedly held that restrictive covenants in the nature of non-competition are considered a restraint of trade and accordingly are contrary to public policy and generally not enforceable.

However, there are some circumstances in which these covenants may be enforced, but those situations are few and far between.

In the Court of Appeal case of Mason v. Chem-Trend Limited, the court of appeal summarized the principles that will be utilized when determining whether to enforce the restrictive covenants in a written employment contract.

These principles are:

1.         To be enforceable the clause must be reasonable as between the parties and with reference to the public interest;

2.         The clause must balance the general public policy in favour of open competition, with the right of the employer to the protection of trade secrets, confidential information and trade protections; and,

3.         The court must engage in a review of the surrounding circumstances when analyzing the reasonableness and enforceability of the restrictive covenant in question.

The court then went on to identify the 3 main areas of consideration in determining when to enforce restrictive covenants.

A.        Did the employer have a proprietary interest entitled to protection?

B.        Are the temporal (time) or spatial limits (geographic distance) to broad?

C.        Is the covenant overly broad in the activity it prohibits because it prohibits competition generally and not the solicitation of the employer’s customers specifically?

In Mason v. Chem-Trend Limited the court of appeal made particular note of the fact that the employee in question was not a senior level employee or officer, but rather part of the sales force operating within a small sales territory.  The contract in question went beyond prohibiting the solicitation of former customers but also prohibited the employee from dealing with any of them in competition with Chem-Trend.  Further, the court noted the contract attempted to prohibit the employee from doing business with potential customers of Chem-Trend, something that would be very difficult if not impossible for the employee in question to know when they had run afoul of the prohibition period.  As a result of the foregoing analysis the court of appeal concluded that the restrictive covenant was unreasonable and unenforceable.

The prevailing case law which trends against the enforcement of restrictive covenants means employers and employees are best advised to seek out proper legal advice prior to drafting and entering into agreements that contain restrictive covenants. While it is entirely possible to craft a fully enforceable restrictive covenant that protects the legitimate proprietary interests of the employer these types of covenants and contracts must be carefully scrutinized to ensure that the result in Mason v. Chem-Trend Limited does not occur.

Posted by D. Jared Brown – Team Lead