Employee Bonuses

Date: 2010
Author: Daniel A. Lublin
Publication: Metro

Court finds nothing “sinister” in Bank’s assessment of long-time employee’s bonus

Employees don’t always get the bonus they deserve. Seldom will this amount to a successful lawsuit.
Veteran investment banker Kenneth Mathieson was well rewarded in his good years. In 2005, he earned a bonus of $1.1 million. However, when his employer, Scotia Capital, decided that he deserved only $360,000 in 2006 – the lowest bonus he had ever received – Mathieson believed the bank was attempting to force his resignation. He wasn’t about to go quietly.
Mathieson complained to management, who listened to his concerns, but remained firm in their decision: his 2006 performance was not at par with his colleagues, which led to his low bonus award. Eventually, fed up with Mathieson’s protests, the bank fired him. Mathieson sued, claiming that his bonus had been reduced in bad faith, among a handful of other claims.
At a recent trial, an Ontario judge found that there was nothing unreasonable about Mathieson’s 2006 bonus award. He had received the lowest performance score for employees at his level according to the bank’s standard criteria. Although there is always an element of discretion in awarding bonuses, here that discretion had been fairly exercised.
Further, on the issue of bad faith, the court found that there was nothing sinister or unfair about the process Scotia employed and that it was not a ruse used to drive him to quit. Simply put, the bank was able to demonstrate that although Mathieson’s bonus award was lower than previously, it had a reasonable justification for the figure it imposed. Most of Mathieson’s claims were dismissed, and he was ordered to pay a large component of his former employer’s legal costs.
Mathieson’s bonus compensation may be limited to very few. However, the court’s legal findings about bonuses apply much more broadly to Canadian workplaces, so both employees and employers should consider the following advice:
Courts are reluctant to supplant an employer’s assessment of performance and bonuses, as long as the process it followed was fair and consistently applied.
Few bonuses are truly discretionary. Although Mathieson lost the big issue in his case, he was still awarded an average bonus payment as a component of his severance. Since he was consistently paid a bonus, the bank had to pay him one even after he was fired.
Beware how you challenge a bonus award. Mathieson’s increasing protests ultimately led to his termination, not a reconsideration of the amount.