Thursday, November 21, 2013

Limitations Periods and Unpaid Bonuses

Picture this:  You are a manager, and have an employment contract which contemplates payment of bonuses, based on your performance and company sales, including a percentage of sales over a given figure.

In your first year, you get a modest bonus.  In your second year, no bonus.  In your third year, another modest bonus.  You never raise a stink about the bonuses, never check the sales data (you may not even have access to the sales data), so you really don't consider whether or not you might be entitled to an additional bonus.  You take your employer's payments at face value, in good faith.

Halfway through your fourth year, you get dismissed - unsurprisingly, no bonus.  22 months after your dismissal, you commence litigation against the employer, seeking close to $300,000 in unpaid bonuses based on the contractual formula.

But is it now to late to claim your unpaid bonuses from years gone by?

This is the issue in Benson v. Bird Mechanical Ltd.:  The employer takes the position that the bonus claims are statute-barred, because they would have been owing (assuming they're owing at all) at the end of each year of employment, more than two years prior to the commencement of the action.  It's unfair, says the employer, that an employee could lie in wait for so many years, never taking issue with the bonus payments, and then sue in summer 2012 in relation to, among other things, a bonus that allegedly was payable in December 2007.

Bird brought a motion to dismiss the claim for unpaid bonuses.  Justice Moore dismissed the motion, finding that Bird had failed to establish that there was no issue requiring a trial, and Justice Wilton-Siegel refused leave to appeal Justice Moore's decision.

Justice Moore's Decision

There were several problems with Bird's position, leading Justice Moore to dismiss the motion in August:

(1) The employment agreement indicated that bonuses would be paid, but did not specify the timing or frequency of payments.  Given that the employment agreement was drafted by the employer, it becomes difficult for the employer to assert a particular date at which the limitations clock would start running.  One might reasonably argue that the parties understood the payment to be payable at the end of each year, but that's not something amenable to a summary judgment, and perhaps more importantly there's more than one way of resolving contractual ambiguity.  This isn't directly touched on in the decision itself, but it would also be hard to believe that a payment calculated on the basis of annual sales might be due during the sales year.  Not only would the sales not yet have been calculated; they wouldn't even be complete.  On that basis alone, I'd say Benson has a leg to stand on when arguing that he always expected the outstanding bonuses to be calculated and paid at some later time.  (See below.)

(2) Benson claimed that he always expected the employer to calculate and pay his bonuses in good faith.  There was never any basis for him to think that Bird was failing or refusing to honour its bonus commitments which might warrant legal action - indeed, he neither appreciated that he had further bonus entitlements, nor that Bird was failing to pay them.

(3) Bird never provided Benson with access to sales figures for the calculation of bonus entitlements.  "[G]iven the special nature of the employment relationship at issue in this matter and the clear language of the bonus provisions in the employment agreement that Bird drafted, the failure to inform Benson of Bird's interpretation of the agreement and to provide him with the sales figures needed to appreciate his potential bonus entitlements amounts to a fraudulent concealment that prevents the running of the limitation period."

(4) This one is perhaps more morally persuasive than legally compelling, but it has some interesting implications that I will touch on later:  "It would have been neither workable nor fair to expect Benson to have jeopardized his job by suing for bonus while still actively employed by Bird."  This is supported by some of Bird's own evidence, that Bird "stopped short of saying that Benson could have sued for bonuses with impunity while still employed."

Justice Wilton-Siegel dismissed the motion for leave to appeal, releasing his reasons earlier this month.  He agreed with almost all of Justice Moore's analysis, that in light of the lack of clarity as to the timing the bonus was payable, the lack of clarity that Benson knew that no further bonus payments would be forthcoming or that he had unpaid bonus entitlements, and the unworkability of suing while still employed, there was no reason to doubt the correctness of Justice Moore's decision.

Furthermore, Justice Wilton-Siegel considered the issue to be very fact-specific, and not of legal issues of broad significance or general importance.  He does acknowledge that there are novel issues of law for consideration, but feels that it is best for such matters to be addressed at a full trial.

That last caveat, I fully agree with:  The impact of a continuing employment relationship on limitations periods for claims against an employer is an issue that could have wider impact, and I think there's are a lot of complex considerations in that light.

My Thoughts

Knowing You Should Sue

I'm generally on side with both decisions.  There are a few lines that set off alarm bells for me, however.  For instance, when Justice Moore wrote that "Bird has not demonstrated that Benson knew or ought to have known that he had a claim for unpaid bonus that Bird would not honour and that he needed to sue to recover upon that claim at any time sooner than he did in fact sue", it seemed a little off, at first glance.

It appears the Justice Moore is suggesting that, because Benson still expected to be paid, there was no reason to sue.  Such a proposition would ordinarily be wrong:  If I submit an invoice to you, and I expect you to make good on your debts, so I don't chase it too much except for the occasional follow-up call, where you tell me that you have a few big receivables that you expect to come in any time now which will allow you to pay the account, I might reasonably be able to say "I didn't expect to have to sue."  However, without certain conditions being met (partial payment, written acknowledgements of debt, etc.), your puffery about expecting to be able to pay me later does not extend the limitations period.  Indeed, the limitations period is pretty firm that way, and many people are surprised by this.  The fact that they didn't know about a limitations period, and took diligent efforts to collect on the debt, doesn't prevent a claim from being limitations-barred.

However, these facts are a bit more nuanced, because it wasn't just a matter of expecting the employer to make good on its debts, but rather to make good on its contractual obligations to assess the bonus payable in good faith and make payments on it in due course - in other words, that Benson had no basis to think the contract was being breached in any way that would generate a right to sue.

Suing While Employed

Far more interesting is the 'unworkability' of suing while still employed.  As morally compelling as the argument sounds, I'm not at all sure that it can stand as a general proposition of law that a limitations argument is foreclosed by a continuing employment relationship.

First of all, let's talk about the kinds of claims that typically arise while still employed:  You get injury claims against the employer, claims for unpaid wages or benefits, human rights violations, health and safety issues, and constructive dismissal claims.

Injury claims are almost universally covered by the WSIA, and are the exclusive jurisdiction of the WSIB, applying a distinct analysis in terms of process and time frames, independent of the Limitations Act.  Human rights claims are similar, being made to the Human Rights Tribunal in the time frames permitted by the Code.  There are now narrow circumstances in which a human rights claim can be made at court, but it requires that the claim be ancillary to another cause of action.  Aside from that, the Tribunal has exclusive jurisdiction.  Health and safety is dealt with through processes available under the OHSA.  Claims for unpaid wages typically fall under the Employment Standards Act framework, which again has its own timeframes for making claims, though the Ministry and OLRB do not have exclusive jurisdiction.

In all of those administrative tribunal processes, an employee is expected and required to raise the matter within a given period of time, and failure to do so - still employed or not - will usually be fatal to the claim.  There's a recognition of the vulnerability of employees commencing legal proceedings against their employers, in the form of statutory reprisal protection.  But none of the employment-specific administrative tribunals will be particularly persuaded by an employee saying, "I couldn't complain about this earlier because I needed to keep my job."

Interesting trivia:  The Employment Standards Act protects an employee's right to payment of bonuses, other than purely discretionary bonuses.  If there's an actionable claim for a bonus, then the odds are that the ESA protects it, and demanding/pursuing that bonus will likely incur the protection of the ESA's anti-reprisal clause.

It seems highly questionable, in my mind, that the Courts would follow a proposition that you need not act in a timely manner to pursue a claim against your current employer, when the Ministry of Labour and OLRB insist on that same claim  being made in a strict timeframe.

And there's a huge disconnect between such a judicial recognition of the impracticality of suing your current employer, with the bulk of the jurisprudence on constructive dismissal.  Not that I necessarily think this is a bad thing.  I've raised concerns before about courts telling employees that, following a constructive dismissal, the reasonable approach in many circumstances is to stay in the job and sue for your losses.

For example, see my commentaries on the Chevalier case, where a constructively-dismissed employee sued in wrongful dismissal and then was offered his job back, and the court found that he failed to mitigate by refusing to accept employment from the employer he was suing.  Also see my commentary on the Ghanny case, where the court discussed - by way of obiter - an employee's demands when offered his job back after commencing litigation:  The court considered it unreasonable for the employee to insist on his existing claims being paid, but unreasonable for the employer to insist on the existing litigation being discontinued - in other words, if you're offered your job back, the appropriate thing to do is to accept the job but still continue your law suit.

My point, altogether, has been that the courts fail to recognize that, for employers and employees, suing each other is a very big deal, which they don't enter into lightly, and leaves a bad taste in everyone's mouth.  (I've also pointed out that there's a bit of a "Fool me twice, shame on me" aspect to it - if you look at it outside the employment contract, most commercial actors are reluctant to do more business with someone they've had to sue in the past:  It seems quite absurd to tell a party, "Yes, we know that they breached your contract before, and continue to refuse to compensate you for that breach, but it's still unreasonable for you to refuse to enter into another similar contract with them moving forward.")

Furthermore, constructively dismissed employees have much bigger problems than the Limitations Act - failure to take action in a reasonable period of time may well have the result that they're deemed to have acquiesced to the changed terms and conditions of employment.

So on some level, I appreciate Justice Moore's recognition about the impracticality of suing your current employer - it's an accurate and down-to-earth assessment of the realities of the circumstances between the parties, and a welcome shift from the broken constructive dismissal doctrines.

And it might reasonably inform the question of whether or not Mr. Benson ought reasonably to have known about the cause of action, addressing the reasonableness of an employee failing to investigate whether or not he's being ripped off.  So I think that, all things considered, Justice Moore's decision is very reasonable.

But, simply put, a continuing employment relationship cannot be a stand-alone ground to argue that the limitations period hasn't started running for existing causes of action.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

1 comment:

  1. Justice Moore may have found some refuge in the treatment of limitations periods in the context of constructive dismissal claims. In situations involving repeated acts of repudiation by an employer over a period of time, the limitation period has been found to commence running not from the date of each unilateral action by the employer (in this instance in not paying the bonuses), but rather from the time when the employee determines to accept the employers' repudiation of the agreement and resigns and brings claim. As you have well noted there is certainly an argument of acquiescence that may exist, but from a limitations perspective as this motion was framed, the same fact scenario when plead as constructive dismissal could yield a different limitation period analysis than if it is plead as wrongful dismissal and recovery of unpaid bonuses.