When Changing a Bonus Can be Constructive Dismissal

A judge in BC has ruled that a unilateral change to an employee's bonus was constructive dismissal:  Piron v. Dominion Masonry.  That was despite the employer's plea that the bonus was discretionary, and despite the evidence that the bonus varied widely from year to year and project to project.

The case highlights the need for employers to be careful about how incentive compensation is determined, especially if they want to be able to claim it is discretionary in any way.

James Piron was a 44 year old masonry foreman who had worked for Dominion Masonry for 19 years.  He started as a mason but became a foreman within a few years.  He began to earn significant bonuses which were based on the size and complexity of the projects.

Trouble began after making some very sizeable bonuses on large projects.  The economic downturn started to bite and the following projects were much smaller.  The employer tried to establish smaller bonuses but couldn't get Piron's agreement.  They then discussed, but failed to agree, on ideas of part ownership or profit sharing through a new division.  The employer was eventually frustrated and angry, said it was "tired of all this bull shit" and simply told Piron he could take his $38 per hour without bonus or move on to something else.

The court decided that negotiating a bonus for individual projects had become an accepted process and a significant feature of Piron's employment.  The economic circumstances and the size and complexity of the projects were relevant to what was negotiated, but that did not give the employer the right to unilaterally change a significant feature of the employment contract.  The hostility in the relationship at its end meant that it was not necessary for Piron to stay at work at his hourly wage in order to mitigate his damages.  He was awarded 15 months.

It is very hard for significant bonuses to be considered discretionary and within the power of the employer.  But if that is the goal, it can be done.  It requires clear contractual language and a clear annual, or project by project, process by which the incentive compensation is set, calculated and paid.  Anything less, and it is likely to be considered an important feature of the employment contract that is not subject to unilateral change.

(The employer's appeal was dismissed and the employees damages were increased on April 23, 2013.)

bonus constructive dismissal incentive compensation mitigation

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