THE QUESTION
I work in a sales role and I receive a bonus if I hit my annual targets. I plan to resign from my job a month before year-end, when the bonuses are paid out, to start a role at a new company. If I’ve already reached my sales target, am I still entitled to receive my bonus even if I don’t stick around for year-end?
THE FIRST ANSWER
Menachem Freedman, lawyer, HHBG Lawyers – Employment Justice, Vancouver
When an employee resigns, in British Columbia, they are entitled under the Employment Standards Act to be paid all of the wages they earned before the resignation date. So the real question is, does your bonus count as wages? The answer is, as is generally the case in law, it depends.
Employees in sales roles often have a large part of their compensation paid out as commission or a bonus based on performance. If you have worked hard and hit your annual targets, you have earned that bonus and should not hesitate to ask for it, even if you are resigning.
The law distinguishes between when a bonus is ‘earned’ and when it is ‘paid’. It is common for a bonus to be ‘earned’ when a target is hit or a sale is made, but to only be ‘paid’ at the company’s fiscal year-end or when the bill is settled with the customer. In general, if you have ‘earned’ your bonus by the time you resign, you should receive it, even if it would normally be ‘paid’ later. However, this general rule is not always applicable, depending on your specific circumstances.
Determining when your bonus was ‘earned’ and when it should be ‘paid’ requires a review of your employment contract and bonus plan, as well as the history of bonus payments between you and your employer. If your employer is refusing to pay, you should make sure to note the deadlines to file an employment standards complaint and a civil claim.
One last thing – when resigning, you should give your employer enough notice so that your departure will not hurt the business and make sure to hand over any property and information needed for your replacement. One strategy could be to negotiate an agreement with your employer where you do your best to ensure a smooth transition and they agree to pay the bonus that you earned.
THE SECOND ANSWER
Amiri Dear, senior associate, Hummingbird Lawyers LLP, Toronto
Whether you are entitled to your year-end bonus is dependent on several factors.
First, take time to carefully read your employment contract, as a lot depends on the terms outlined within it. Your employment contract could very well include express terms regarding your qualification for a bonus payment upon resignation. These terms could likely answer all or at least part of your question.
Case law has shown that you are likely to be awarded your bonus upon resignation if your bonus was provided regularly and at predictable amounts, if it’s an integral part of your compensation and if it was based on targets that were set and reached.
If your contract is silent on the terms surrounding the payment of your bonus, then you need to consider whether the bonus payment falls within the definition of ‘wages’ under your province’s employment standards act or code.
Under Ontario’s Employment Standards Act, ‘wage’ is defined as “monetary remuneration payable by an employer to an employee under the terms of an employment contract written, oral, expressed or implied.” In your case, payment of your bonus was not dependent on the discretion of your employer, rather it was earned, because you reached concrete, measurable sales targets determined by your employer. It’s therefore arguable that your bonus could constitute as a part of your wages.
Even when an employee resigns, it’s not justification for withholding their bonus. Employees can still be entitled to their bonus right up to their termination or resignation, unless there is specific and unambiguous language within the employment contract that says otherwise.
Have a question for our experts? Send an e-mail to NineToFive@globeandmail.com with ‘Nine to Five’ in the subject line. Emails without the correct subject line may not be answered.
Andrea Yu