Employment agreement clearly provides for discretionary annual performance-based pay, court says

BY Bernise Carolino

December 19, 2022

The judge below overlooked evidence about bonuses that the appellant previously received and should have awarded him the performance-based bonus payable under the employment agreement, the Ontario Court of Appeal said in a recent case.

A motion judge awarded the appellant 12 months’ severance payable under the employment agreement when his employer, the University Health Network (UHN), ended his employment following the early termination of his secondment agreement with UHN and Ontario Health. However, the judge did not find the appellant entitled to payment for the secondment’s remaining term.

The judge made the following findings:

  • the employment agreement and the secondment agreement clearly and unambiguously provided that the appellant remained a UHN employee during the secondment period
  • the secondment agreement was not an employment agreement
  • the secondment agreement contemplated early termination

According to the judge, there was a lack of evidence about the bonus. There was no evidence regarding the appellant’s performance and his potential eligibility for 25 percent or a lesser amount, the judge said.

The appellant argued that the judge should not have dismissed his claim for damages arising out of the secondment agreement’s early termination. He alleged that he was entitled to payment for the secondment agreement’s remaining term in addition to the 12 months’ severance, as well as payment of a discretionary annual performance-based bonus.

Appellant entitled to bonus

In Nader v. University Health Network, 2022 ONCA 856, the Ontario Court of Appeal found the appellant entitled to a bonus of 25 percent of the 12 months’ salary he received for the severance period and otherwise dismissed the appeal.

The appellate court ruled that there was no basis to interfere with most of the motion judge’s findings, which were available to him on the record.

An appeal was not an opportunity to seek alternative findings, the Court of Appeal said. In line with Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, the motion judge’s interpretation of the agreements deserved deference in the absence of palpable and overriding errors or extricable errors in principle.

However, the appellate court held that the motion judge should not have denied the performance-based bonus payable under the employment agreement. The judge overlooked evidence establishing that the appellant received bonuses of around 25 percent for 2018 and 2019 and slightly less on a pro-rated basis for 2020 until the termination of his employment, the court said.

The Court of Appeal determined that the employment agreement clearly provided a discretionary annual performance-based bonus of up to 25 percent of the appellant’s annual base salary, as well as payment of an amount equal to 12 months’ salary in the event of termination without just cause.

The appellate court noted that there was no appeal from the motion judge’s finding that the appellant’s health care spending account – an amount required to be under the employment agreement in addition to the base salary – was owing as part of his compensation upon termination.

The appellate court said that the bonus was properly considered part of the compensation owed on termination, just like the health care spending account, and that it was reasonable to infer that the appellant would have earned the bonus for the year ahead.