Focus: In-house counsel taking bonus battle to appeal court

A lawyer who missed out on a six-figure bonus because his dismissal occurred before the payout date is heading to the Court of Appeal for Ontario after a judge found a restrictive limitation clause in his contract to be enforceable.

National Money Mart Co. terminated Jonathan Kielb without cause in April 2010 two months before the end of the company’s fiscal year. Accounting for an eight-week contractual notice period, the termination occurred just days before he qualifed for the company’s 2009-10 bonus. In any case, Money Mart’s limitation clause required all recipients to be employed on the September payout date in order to get their bonus. In Kielb’s case, it would have amounted to 60 per cent of his base salary of $170,000, or just over $100,000, for that year.

In his June 12 decision, Superior Court Justice Suhail Akhtar determined the bonus payment was an integral part of Kielb’s compensation. Despite that finding, he concluded the limitation clause wasn’t contrary to the public interest or ambiguous and was, therefore, enforceable.

Kielb’s lawyer, Jeff Hopkins, says his client has appealed the decision because he believes it conflicts with existing case law, such as Schumacher v. Toronto Dominion Bank, a case involving a financial manager who won his claim for a bonus despite losing his job before the payout date after the judge found it was an integral part of his compensation package.

“If a bonus is an integral part of the compensation, then any restrictive language in the bonus plan, such as Money Mart’s, should be inapplicable because the unilateral action of the employer, in terminating the individual employee involuntarily, can preclude them from being able to work to that payment date,” says Hopkins, a partner at Toronto labour and employment boutique Grosman Grosman & Gale LLP.

Given the importance of the bonus to Keilb’s pay, Hopkins argued he should receive a prorated bonus award covering the period up to his dismissal and his notice period. “I was certainly surprised at the decision because I think the concern now is whether Schumacher v. Toronto Dominion is still good law,” says Hopkins.

A key difference in the Schumacher case was that the employee would have been employed on the payout date had the company given him reasonable notice, but Hopkins says he hopes the Court of Appeal can explicitly clarify whether or not that should matter.

The case dates back to November 2008 when Kielb finally signed his contract after a lengthy negotiation with Money Mart management. According to the decision, he initially expressed his interest in the position a month earlier through a recruiter but wasn’t happy with the $170,000 salary on offer.

Kielb’s evidence was that a Money Mart manager had told him the salary was non-negotiable but swayed him with an explanation of the bonus program that was worth a maximum of 60 per cent of base pay.

Money Mart lawyer Susan Crawford, a founding partner at Crawford Chondon & Partners LLP, argued the judge shouldn’t consider the alleged representations by the manager because of an “entire agreement clause” in the contract that bound the parties to the terms contained in the written employment agreement.

Akhtar, however, disagreed and found the entire agreement clause unenforceable on public policy grounds. As a result, he declared the bonus an integral part of Kielb’s salary. “It ill serves the public interest to permit companies and their recruitment agencies to orally promise automatic financial benefits and bonuses in order to secure prospective employment candidates and then eliminate those benefits without a clear and timely warning.”

Despite that finding, the judge ruled the restrictive limitation clause, which emphasized that the bonus was paid “entirely at the discretion of the company,” wasn’t contrary to public policy. The clause also said that any bonus “does not accrue, and is only earned” on the payout date and laid out specific examples of when the company wouldn’t pay a bonus, including the scenario ultimately experienced by Kielb. “In the event that your employment is terminated without cause, and a bonus would ordinarily be paid after the expiration of the statutory notice period, you hereby waive any claim to that bonus or any portion thereof,” the clause stated.

Akhtar wrote that Kielb had already demonstrated some negotiation ability to achieve an improved offer from Money Mart and that he had time to obtain legal advice about it. “The plaintiff had a number of ‘choices’ open to him,” wrote Akhtar. They included renegotiating the limitation clause, asking for its removal or declining the offer.

“His choice was to live with the less favourable clauses in his contract and the risks that they entailed. . . . Public policy would be ill served by permitting the plaintiff to accept a potentially lucrative position with the full knowledge that it contained a potentially unfavourable limitation clause and then to complain when that clause was actually executed,” the judge added.

Crawford says she and her clients were “very happy” with Akhtar’s decision. “I didn’t write the language in the contract, so I can’t take credit for it, but it couldn’t have been clearer about the consequences,” she says.

Kumail Karimjee, a co-founder of employment law firm Karimjee Greene LLP, says Kielb’s status as a lawyer and his exercise of negotiating power worked against him. “He’s a sophisticated employee, he’s legally trained, and he negotiates back and forth, so some of the traditional arguments about power inequality are less forceful in this kind of scenario,” says Karimjee.    

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