REVISING BONUSES: SUBSTANTIAL ALTERATIONS TO EMPLOYEE BONUS PROGRAMS MAY CONSTITUTE CONSTRUCTIVE DISMISSAL

A recent BC Supreme Court decision shows that employers should exercise caution when making unilateral changes to employee bonus programs. In Wiltse v. Seastar Chemicals ULC, 2020 BCSC 658, the plaintiff was a chemist who had been employed at a chemical productions company for 17 years. The plaintiff participated in the company’s bonus program, which was non-discretionary and allowed him to share in the company’s net profits. For 2016 and 2017, the plaintiff received bonuses that amounted to 33% and 36% of his annual salary, respectively.

The company was subsequently sold and in 2018, a representative for the new owner announced structural changes to employee compensation. These changes included termination of employee profit-sharing and limited the plaintiff’s maximum bonus entitlement to a fixed percentage of his base salary. The changes also meant that the bonus program was no longer non-discretionary, and the plaintiff’s income was reduced.

The plaintiff informed the company that he did not accept the unilateral changes, and that he would continue working with the company until he found a comparable position with similar remuneration. After an email exchange, in which the company asked whether he would accept the changes or resign, the plaintiff advised the company that he could no longer continue in his role. He left the company and brought an application for summary trial alleging wrongful dismissal.

Issue

The key issue in the plaintiff’s application was whether the company’s changes to the employee bonus program was an act of constructive dismissal that entitled the plaintiff to salary and benefits for the reasonable notice period at common law.

Legal Test and Analysis

In considering whether the employer’s alterations to the plaintiff’s bonus entitlements amounted to constructive dismissal, the court assessed whether there had been a substantial breach that repudiated the employment contract. The Court found that the plaintiff’s projected loss in salary from 2019 onwards meant that the changes to the bonus program were a substantial breach. Bonuses no longer being non-discretionary and the loss of the plaintiff’s right to share in profits were also significant unilateral changes that together amounted to a repudiation of the employment contract. The Court also took issue with the company’s communication of the changes to the bonus program, finding that the plaintiff was given no alternative but to acquiesce to the company’s demand. The Court did not accept the employer’s argument that a term of the bonus program allowed alterations “to account for changes in the business”. The Court found that term did not allow the company to terminate the existing bonus program and alter its general compensation structure for its employees.

The plaintiff was awarded 16 months wages and benefits in lieu of reasonable notice at common law.

Implications for Employers

The Court’s decision shows that a substantial and unilateral change to a company bonus program for employees that results in a significant reduction in employee income may amount to constructive dismissal. Employers should therefore exercise caution when considering changes to employee bonus programs and provide as much notice as possible regarding intended changes. Moreover, employers that are considering buying a business, and planning to continue employing the employees already working at that business, should be aware of any bonus and/or compensation scheme that is already in place.

This update was authored by Neal Parker. Questions? Comments? Concerns? Contact Neal at [email protected] or anyone else listed on the authors page.