In Thoma v. Schaefer Elevator Components Inc., 2019 BCSC 100, Mr. Thoma’s employment contract allowed his employer, Schaefer Elevator, to terminate his employment without cause on six months’ notice by providing Mr. Thoma his “contractually agreed remuneration during the six months’ notice period.”  Mr. Thoma claimed that this included payment of an annual bonus and that he was entitled to receive it.  Schaefer Elevator terminated his employment without cause on October 31, 2017.

The employment contract provided that Mr. Thoma would receive an annual bonus of “up to” $24,000 per year, based upon “agreed upon targets” and his “degree of achievement” of those targets.  Mr. Thoma argued that over the period of his employment with Schaefer Elevator, he received the full amount of his bonus in 2013 (pro-rated), and in 2014, 2015, and 2016.  He said he did not receive any bonus in 2017, and argued that he was entitled to it as well as a pro-rated bonus for 2018, as his 6-month notice period expired at the end of April, 2018.  Mr. Thoma took the position that the bonus was an integral part of his wage structure and, based on past conduct, he had a reasonable expectation that the employer would not exercise its discretion against him by declining to pay it.

Schaefer Elevator argued that the bonus process involved both the setting and achieving of goals, and that its reasons for exercising its discretion to award a bonus in one year were not binding on whether or not it would, or would have to, exercise that same discretion in a subsequent year.  To this end, the employer said that the terms of the bonus plan were spelled out in writing, complete with preconditions that had to be satisfied.  Since those preconditions were not satisfied, Schaefer Elevator said that there was no obligation on its part to pay the bonus.

The Court held that even though the bonus plan was spelled out in writing, the fact that the preconditions for a bonus payment were not satisfied was not enough for Schaefer to deny payment of the bonus to Mr. Thoma.  The Court held that as an employer, Schaefer Elevator was obligated to exercise its discretion regarding the payment of bonuses in a “transparent and fair manner.”  At paragraph 20, the Court separated consideration of the terms of the written agreement from the way it had been applied:

[20] … In such cases, it is not so much the terms or conditions of the bonus policy that are subject to scrutiny, but the manner in which the employer implemented those terms in the exercise of its discretion.  The bonus may be discretionary, but where over the course of the employment it has been awarded in a way that leads the employee to believe the discretion will invariably be exercised in the employee’s favour, this may lead to a finding that the employer has breached the employee’s contractual rights by refusing to pay the bonus in a manner that is not fair or transparent. … To be clear, the issue is not the employee’s reasonable expectation as to the terms of the contract itself, but the employee’s reasonable expectation as to the manner in which the employer’s discretion under the contract is exercised.

The Court found that the bonus constituted an integral component of Mr. Thoma’s compensation.  It also found that Schaefer Elevator had paid out bonuses in the past where the goals were not set or met.  In sum, as a result of Schaefer Elevator’s past conduct, Mr. Thoma had a reasonable expectation as to the manner in which his employer would exercise its discretion under the contract to pay the bonus.  He was awarded a bonus totalling $20,000, namely, for the 10 months of 2017 that he actually worked.  As a small win for Schaefer Elevator, he was not awarded a bonus for the notice period, because he was not wrongfully terminated without reasonable notice and therefore not deprived of an opportunity to earn a bonus during those months.

This case provides another cautionary example for employers offering discretionary bonus payments.  Even where the terms of a bonus plan are clear that payment of any bonus is discretionary and/or subject to several preconditions, if the employer does not make a point of adhering to those preconditions, it may preclude the employer from relying on them in the future.  As happened in Thoma, the employee may be able to say that the employer’s conduct nonetheless provided it with a reasonable expectation that the employer would exercise its discretion to pay the bonus as it had regularly done.