Are employers allowed to change how and when bonuses are paid out? The company I work for has a yearly bonus plan with targets set out at the beginning of the year. If at year-end the targets are met, an employee gets a bonus. Until 2018, the bonus was paid out each February in cash. But last year, because revenue was down, the company decided to pay out the bonuses quarterly in restricted stock units (RSUs). There isn’t anything in my employment contract about the bonus plan.
The first answer
Nadia Halum, associate, MacLeod Law Firm, Toronto
Employers can make all sorts of unilateral changes, including reducing an employee’s salary or incentive compensation. However, if the unilateral change is made to a fundamental term or condition of the employment relationship, the employer’s actions may lead to what is known as a “constructive dismissal.” For a change in variable or incentive compensation to lead to a constructive dismissal, the reduction must be significant. Also, it is important to keep in mind that a constructive dismissal only happens if an employee refuses to accept the unilateral change to their employment. If the employee accepts the change, a constructive dismissal claim will fail.
What is difficult in this case is that, because the bonus will now be paid in RSUs, which will presumably not vest in the near future, you will not know for quite some time whether your incentive compensation will increase, remain the same or decrease significantly. Luckily, the courts do allow a “grace period” for employees to fully understand the nature of the change being imposed and the consequences of accepting such a change. Once you have this information, you will be better equipped to understand if you have been constructively dismissed.
Constructive dismissal is a very nuanced area of law (for example, is the incentive compensation a fundamental term of your employment contract? How big must the reduction be for it to be considered significant?) Therefore, we always recommend that employees seek legal advice regarding how to respond to unilateral changes, particularly to avoid being found to have accepted the change.
The second answer
Rachel Roy, partner, Allevato Quail & Roy, Vancouver
Whether an employer is allowed to change how and when bonuses are paid out depends on a number of factors.
Is there an agreement between you and the employer regarding how and when this bonus is paid out? You said it isn’t referenced in your employment contract, but you may have other legally binding agreements with your employer that should be followed. This agreement doesn’t necessarily have to be in writing (although it’s advisable if it is). For example, if you were offered a new position in the company and promised a cash bonus each February if you met your targets, and you accepted this offer, the employer should honour that agreement (or renegotiate it with you).
Is the bonus discretionary or based on individual and company targets? You indicated that your bonus is calculated based on whether you meet targets that are set at the beginning of the year. Employers generally have less flexibility when it comes to changing these types of bonuses in comparison with purely discretionary bonuses (for example, the fabled Christmas bonus).
Is the bonus a significant part of your compensation structure? If it is, then employers generally have to give you appropriate notice of changes. The amount of notice you are entitled to will depend on your employment contract and/or other factors such as the length of time you’ve been with the employer.
In short, unless you have an agreement to the contrary, it’s likely that your employer can change to quarterly bonus payouts in RSUs. If this will significantly impact your compensation (for example, due to the terms attached to the RSU), your employer may have to give you appropriate notice of this change.
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