An Ontario court recently ordered an employer to pay a large award due to the employer persistently paying an employee’s bonuses late. In Kirchmair v EXP Global Inc. [Kirchmair], the court awarded an executive-level employee nearly $700,000 in unpaid wages, pay in lieu of notice, and aggravated damages, because it found that the employer constructively dismissed him and acted in bad faith by repeatedly paying his bonuses several months late (and failing to pay two bonuses at all for several years). Kirchmair serves as a cautionary tale for other employers that, not honouring contractual terms with respect to payment of bonuses can be very costly.
Background
Mr. Kirchmair is a chemical and environmental engineer who was a partner in a boutique engineering firm, Barenco, until it was acquired by another company and later rebranded to be EXP Global Inc. (“EXP” or the “Company”). Mr. Kirchmair negotiated a three-year employment contract with the Company as part of the share purchase agreement. His primary role was to be a “rainmaker” by growing the business relationship that Barenco had with its largest customer, Imperial Oil.
Mr. Kirchmair subsequently negotiated an amendment to his employment contract in 2013, under which he would receive an annual salary of $218,400 and two types of non-discretionary bonuses. Both bonuses were calculated using specific formulas and financial information, with one being based on Mr. Kirchmair successfully negotiating new contracts and/or contract extensions with Imperial Oil (the “Success Bonus”), and the other being an annual bonus based on the financial performance of the Company.
Crucially, the contract included specific deadlines for these bonuses to be paid – the success bonus needed to be paid within 30 days of a new contract or contract extension with Imperial Oil, and the annual bonus needed to be paid on May 31st of each year. The contract also stated that Mr. Kirchmair would be provided with 21 months of pay if he were dismissed without cause.
Although it was the Company’s responsibility to calculate the amount of Mr. Kirchmair’s bonuses, it never once initiated the calculations or payments throughout the remainder of his employment. Rather, EXP failed to pay every bonus on time, and each time there was an outstanding bonus, Mr. Kirchmair had to repeatedly request that the bonus be calculated and paid. Even then, the Company largely required Mr. Kirchmair to calculate the bonus himself, and it still failed to pay the bonus in a timely manner after the amounts were calculated.
For example, Mr. Kirchmair earned a success bonus of $150,370.86 and an annual bonus of $106,054.19 in the 2014 fiscal year, which were due to be paid on April 5 and May 31, respectively. However, the annual bonus was paid 7 months late and the success bonus was paid 8 months late. The Company did not have any reasonable explanation for why the bonuses were paid so late, and this problem continued for the remainder of Mr. Kirchmair’s employment. For example, the Company paid a 2016 success bonus more than 19 months late.
Ultimately, Mr. Kirchmair’s claimed that he was constructively dismissed in August of 2017 after the Company attempted to negotiate a new bonus structure that was less favourable to him while also refusing to pay his 2017 bonuses which were several months overdue (despite Mr. Kirchmair demanding payment of these bonuses through his lawyer).
As a result, Mr. Kirchmair resigned and commenced a court action for constructive dismissal against EXP claiming payment of his unpaid bonuses, 21 months of salary, and aggravated/punitive damages. In response, EXP global argued that Mr. Kirchmair condoned the late payment of his bonuses by continuing to work for the Company despite the late payments (such that he was not constructively dismissed), and that he abandoned his employment.
The Court’s Decision
Ultimately, the court ruled that EXP had constructively dismissed Mr. Kirchmair by persistently paying his bonuses late (and failing to pay the 2017 bonuses until the time of trial), and that it acted in bad faith by withholding the bonuses in an effort to get Mr. Kirchmair to agree to a less favourable bonus structure.
In reaching this conclusion, the court held that establishing constructive dismissal requires proving that the employer: (i) unilaterally breached an essential term of employment; or (ii) engaged in a series of acts that demonstrate an intention to no longer be bound by the terms of the employment contract. In applying this test, the court found that the timeline for the payment of the non-discretionary bonuses was a fundamental term of Mr. Kirchmair’s employment contract, and that EXP consistently breached this term over the course of three years. Further, the court found that these breaches were sufficiently serious to constitute a constructive dismissal given that the Company breached this term several times by paying Mr. Kirchmair’s bonuses several months late, and in some cases failing to pay them at all. The court also rejected that Mr. Kirchmair condoned the late payments because it found that he consistently requested for his bonuses to be paid, and he never implicitly agreed to the bonuses being paid late.
As a result, the court awarded Mr. Kirchmair 21 months of salary, amounting to $382,000, along with $148,60.23 in unpaid wages for the unpaid 2017 bonuses. Further, the court awarded Mr. Kirchmair $150,000 in aggravated damages because it found that EXP acted in bad faith by withholding the bonus payments to get Mr. Kirchmair to agree to a less favourable bonus plan and by not being transparent with him about why his bonuses were being paid so late. On the other hand, the court declined to award punitive damages because it found that EXP’s actions were not malicious or vindictive.
The Bottom Line
This is a very notable case because it appears to be the first time that an Ontario court has ruled that an employer persistently paying bonuses late constitutes a constructive dismissal. Further, as noted above, Kirchmair serves as a cautionary tale for employers that failing to honour contractual terms regarding when bonuses are to be paid may prove very costly – indeed, in this case the court awarded Mr. Kirchmair the unpaid bonuses and aggravated damages in an amount that was even more than the unpaid bonuses.
Finally, employers would be well advised to only include terms in employment contracts requiring bonuses to be paid by specific timelines if they will be able to honour those commitments. Where there may be legitimate reasons for why bonuses must be paid later in some years than others (e.g., cash flow issues), prudent employers should ensure that their bonus clauses contain appropriate language to provide them with flexibility in such circumstances.
If you require assistance with preparing employment contracts/bonus agreements, or with defending against a constructive dismissal claim, please do not hesitate to contact us for expert legal advice and representation.
