In a competitive job market, many employers turn to implementing bonus programs or offering other fringe benefits like car allowances to attract and retain talented employees. However, employers are often surprised to learn that they may owe recently terminated employees ongoing bonus payments and other fringe benefit payments through the employee’s notice period. In this blog, we will explore why these entitlements may be awarded, the length of time the employer may be on the hook for paying these sorts of entitlements, and what an employer can do to avoid such an unwelcome surprise.

The notice period

First, a word on post-termination entitlements more generally. Employees in most Canadian provinces are presumptively entitled to something called reasonable notice. This is a period of time awarded to a recently dismissed employee meant to cushion them from one role to the next. The period awarded is based on several factors including but not limited to the age of the employee at the time of termination, length of service, the character of the employment, and the availability of other similar employment opportunities.

While minimum standards legislation usually calls for between one to eight weeks of notice for termination (or more if your employee is receiving both termination notice and severance pay), reasonable notice periods are generally much longer and can range between several weeks and several months. In fact, in some cases, like those involving older employees with lengthy periods of service, the notice period can even be in the realm of 20-26 months. The only way to oust the employee’s right to the reasonable notice period is through an enforceable employment contract which limits the employee’s entitlements upon termination to something less than what is offered through the common law reasonable notice period but also upholds the standards set by minimum standards legislation.

Entitlements during the notice period

While more and more employers seem to be becoming familiar with the concept of reasonable notice, it still seems to come as a surprise just what the employee might be owed during this period.

Generally speaking, Ontario courts typically expect the employee to be compensated as if they continued to work throughout the period of notice. This means that if before termination, your employee was regularly receiving bonuses and fringe benefits like a car allowance, you can assume a court would expect that the employee receive this during the notice period too. However, just as employers can limit entitlement to reasonable notice periods, employers can and should be turning their attention to limiting the sorts of compensation employees may be entitled to after termination.

In order to limit any nasty post-termination entitlement surprises, employers should consider the following:

• Consider these entitlements from the get-go: over the past few years, it feels like a new case (and a warning to employers) comes out every month about the enforceability of an employment contract’s termination clause. While we won’t argue about the importance of an enforceable termination provision, it’s also important that employers pause and give important consideration to the clauses in the employment contract dealing with bonus and other fringe benefits and ensure that they too are enforceable;
• Determine whether these entitlements are only addressed by your employment contract: while the employment contract often feels like it is the ‘source of truth’ when it comes to the terms and conditions of a particular employment relationship, chances are, your organization has other documents like bonus or allowance policies floating around. While you may consider these documents outdated, they may provide the only guideline on a particular bonus or entitlement that your employee is currently receiving. If that’s the case, whether you know it or not, the employee (and even worse, a court) may view that document as setting the standard for receiving that particular bonus or entitlement. Make it a point to audit the existence and enforceability of these sorts of documents;
• Know when it’s time to seek advice: drafting enforceable terms, including those limiting potentially costly bonuses and fringe benefits post-termination, is truly an art. Know when it’s time to seek the help of a lawyer.

By Tiffany Thomas