This 2012 decision of B.C.’s Supreme Court, and upheld in 2013 by the Court of Appeal, shows the practical consequences of how the courts view a contract of employment and its changes.
The case is a constructive dismissal case in favor of the former employee. He was dismissed in mid-2011 when the employer refused to pay his bonus—which they had been paying as part of his salary—in 2011.
The employer said the bonus was completely discretionary that was based on the economic health of the company, while the employee said it was payment for every new project. The court agreed with the employee.
The treatment of the bonus is an illustrative view of how an employment contract forms and changes. Because it was not included in any written contract, the courts looked at the discussions and justifications for the bonus to determine whether it was strictly discretionary.
Assessing a contract looks at the customs, practices and intent of the payments. The evidence showed the payments were not strictly discretionary but payment for each project, with the amount to be negotiated. It was not the bonus that was negotiable; it’s the amount.
This decision seems rather unpalatable for an employer. It lacks the clarity and precision of a written contract and is subject to the nuances and details of conversations by managers and supervisors, taking it out of hands of Human Resources and executives. Multiple layers increases the risk of miscommunication or blocked information flow, and this was shown in this case, when one of the owners claimed to have not known about the negotiations for the bonus until close to the dismissal.
Explicitly describing the details of bonus payments in a written contract appears to be the remedy. It is certain and concrete.
But this can be changed by actions and customs that are different. Consistent practices that are different from the contract can be ruled as accepted changes to the written agreement—implied terms— and become part of it.
It’s not enough to have it in the contract. Vigilance and consistency is also key. Actions and policies should match the letter and spirit of what is written.