In an Employment Standards appeal decision issued June 13, 2018[i], Provincial Court of Alberta Judge D. Higa, acting in his role as an Employment Standards Umpire, confirmed that where a bonus is not purely formulaic, and includes any component of discretion on the part of the employer, the bonus is not “wages” as defined in the Alberta Employment Standards Code (“Code”).

In this case, the employer sought to overturn a nearly $70,000 award made to a terminated employee who claimed she was owed a bonus earned the year prior to her termination. The employer had not paid out prior year bonuses to any staff at the time of the termination, although bonuses were paid out subsequently to remaining employees.

The employee argued that bonuses paid out through a short term incentive plan (“STIP”) were historically always given, and as such formed a part of her remuneration package and fell within the definition of “wages” under the Code. An Employment Standards Officer found that the STIP was “earned” in the year prior and therefore made the award in favour of the former employee.

The decision hinged on the Code’s definition of wages which expressly excludes “… a payment made as a gift of bonus that is dependent on the discretion of any employer and that is not related to hours of work, production or efficiency.” Under the Code, employees may claim through Employment Standards for wages as defined in the Code.

The Officer making the award found that the employer’s STIP payments were effectively “performance bonuses” tied to company production. That is, the better the company performance, the better the STIP payments.

While the calculation of a STIP bonus did include clear objective criteria based on the company’s financial performance, the payments also required the completion of individual performance reviews that include some form of subjective assessment. On that basis, Judge Higa revoked the Employment Standards Officer’s original decision holding that the legislation does not contemplate “performance” in the qualifying factors “hours or work, production or efficiency.” He found an employment standards Officer can only assess and adjudicate bonuses that have clear empirical formulation and cannot be put into the position of qualitatively assessing employee performance.

Pure discretionary bonuses that do not relate to hours of work, production or efficiency, cannot be subject to investigation and scrutiny by Employment Standards. To do so would place the investigating officer in the role of the employer and having to address and consider subjective criteria and considerations. […] Clearly, there is no realistic way for an Officer to embark on such an exercise.

It is important to distinguish this decision from the common law principals that apply to expected bonus payments on termination. Under the common law, even something described as a discretionary bonus may become an expected part of remuneration for severance purposes.  Judge Higa only considered this issue within the confines of the Code’s definition of bonus. The decision should result in an end to terminated employees seeking relief through the no-cost Alberta Employment Standards branch. Rather, they will have to incur the costs of pursuing relief through the courts, where the costs of the pursuit may not justify the potential outcome.

[i] In the Matter of the Employment Standards Code Revised Statutes of Alberta 2000 Chapter E-9 with Amendments in Force as of January 1, 2018, AND in the Matter of an Order Issued by an Officer under the Employment Standards Code Dated March 17, 2017 against Gran Tierra Energy Canada ULC Operating as Gran Tierra Energy, File No. ES-032495