Special thanks to our articling student Rana Aly for contributing to this update.
Key Takeaways
Employers often assume that bonus damages in a wrongful dismissal claim will be calculated by averaging the employee’s last three years of compensation. A recent Ontario Superior Court decision confirms that assumption can be wrong and very expensive depending on the circumstances.
Warren v. Canaccord Genuity Corp. is a reminder that courts will consider the context of a bonus entitlement, and will not mechanically apply a three-year averaging method. Where a terminated employee can point to what comparable employees actually earned during that same window, a court may use those real-world figures instead as a better indicator of what bonus the employee ought to receive. This could have a particular impact for employers in bonus-heavy, market-driven industries.
Background
Craig Warren was a Managing Director in Canaccord’s mining group, terminated without cause in September 2019 after 18 years of service. His compensation was heavily bonus-dependent, fluctuating based on Canaccord’s Canadian Capital Markets Pool and his individual performance. Justice Schabas awarded Mr. Warren 21 months’ notice. The central dispute was how to calculate the bonus component of that award.
The Core Dispute: Average the Past or Reflect the Present?
Canaccord took the standard approach: calculate bonus damages by averaging Mr. Warren’s last three years of bonuses. Mr. Warren argued that approach would produce a misleading result. The mining investment banking market boomed during his notice period. Canaccord’s Capital Markets Pool nearly tripled, growing from approximately $57 million in 2020 to approximately $140 million in 2021, described at trial as a “once-in-a-decade bull market”.
Mr. Warren’s position was simple: look at what the Managing Directors who replaced him actually earned during the notice period.
The court agreed. The court found two main reasons to depart from the three-year average.
First, Mr. Warren’s pre-termination bonuses were not a reliable indication of what he would have earned based on the context and evidence.
Second, Canaccord’s own bonus plan language undercut its position. The plan tied payouts to the size of the capital markets pool. A three-year historical average would ignore actual pool performance during the notice period entirely, which the court found inconsistent with the plan’s own terms.
As a result, the court determined that the averaging approach was not appropriate as a representation of what the employee’s bonus entitlement would have been at the relevant time. Instead, the court determined the most appropriate comparator at the employer and used their actual bonuses received to calculate Mr. Warren’s damages across the 21-month notice period.
What This Means for Employers
Do not assume the three-year average approach always applies. Particularly where market conditions shift materially during the notice period and comparator evidence is available, courts may take a closer look at the context and will use the better evidence to determine what an employee would have earned.
Replacement hire compensation creates a litigation footprint. The person you hire into a terminated employee’s role may become the benchmark for what you owe. In volatile industries, that can be a very expensive benchmark.
Review your bonus plan language. If your plan ties payouts to business performance metrics, that language may support a forward-looking damages calculation. Assess whether your plan terms inadvertently strengthen an employee’s comparator argument.
Seek legal advice before the termination. Assessing the risk of terminating a long-tenured, senior employee in a cyclical industry in particular requires a forward-looking analysis that accounts for where the market may go during the notice period, not just where it has been.
For support, please contact a member of our team.