Poorly worded bonus plan costs employer

Former Mercer Human Resources Consulting employee gets an additional $18,000 bonus

When it comes to law, the written word matters. And the written words in the incentive compensation plan at Mercer Human Resources Consulting were, as candidly admitted by the company’s counsel, “not ideal.”

In fact, an Ontario court awarded a former consultant at Mercer, who was terminated without cause, an additional $18,000 because the wording of the plan left the door open for employees to collect it during the notice period.

Dennis Schettler was a consultant in Mercer’s administration practice. He was terminated without cause on Nov. 13, 2000. He was offered a severance package consisting of continuation of salary and some benefits for a period of 16 months.

As part of the package, he was required to sign a final release and indemnity agreement and to agree that Mercer’s obligation to continue payments under the severance package would change if Schettler found other employment prior to the end of the 16-month notice period. In that event, he would be entitled to a lump-sum payment equal to 50 per cent of his salary for the remainder of the notice period.

No luck finding a job

Schettler, an actuary, applied for more than 200 jobs, including some outside of his usual area of expertise, but was unable to find another position.

He set up shop as a private consultant and was able to find some work, earning about $9,439 consulting for two companies.

Mercer continued full payment of the amounts offered in its severance package through to the expiry of the 16-month notice period. In addition, in late February 2001, it paid Schettler a bonus of $18,000 for the full year 2000.

But Schettler wasn’t happy with the severance package offered by Mercer. He refused to sign off on it. He thought he was entitled to 17 months’ pay, not 16, and thought that all of the benefits should have been continued for that 17-month period.

The reasonable notice period

The court sided with Mercer when it came to the notice period. Justice Moore of the Ontario Superior Court of Justice said 16 months was “reasonable” and that Mercer owed Schettler nothing further in terms of notice.

The incentive compensation plan

Schettler’s employment contract stated that he was entitled to participate in the Mercer incentive compensation plan. Under the plan, a bonus is payable around March 1 for results achieved during the preceding calendar year.

Schettler said he was entitled to a bonus equal to a rateable portion of his average annual entitlement under the plan during each of the months of his notice period. His bonus was $18,000 for the 1999 calendar year. Mercer terminated his employment in November 2000 but paid him $18,000 for that calendar year also.

Schettler therefore sought a bonus calculated from January 2001 through to the end of his notice period in March 2002 based upon an $18,000 annual rate.

The incentive compensation plan, (ICP) a five-page document, closed with the following statement: “To receive an ICP award, you must be on the payroll at the time the payout is made.”

Counsel for Mercer candidly agreed that the language of the incentive compensation plan “is not ideal” and the court agreed.

“Although (Mercer) asserts that the ICP is entirely an incentive and retention (of valued employees) tool, there is no language within it limiting its application to employees in active service during the calendar year,” said Justice Moore. “Put another way, there is no language excluding terminated employees from taking under the plan during a termination notice period. If the intention of the drafter of the document had been to exclude a terminated person, clear and certain language could have been included.”

The court pointed out that entitlement to participate in the plan is tied to a requirement that a person be “on the payroll” and not to being actively involved in the performance of a particular job. Mercer conceded that Schettler remained on the payroll following his termination in November 2000 to March 2002.

Therefore, Mercer should have paid Schettler a bonus for 2001 in March 2002 of $18,000. As he was not on the payroll in in March 2003, there would be no additional bonus after that, the court said.

For more information see:

Schettler v. Mercer Human Resource Consulting Ltd., 2006 CarswellOnt 4049 (Ont. S.C.J.)

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