Maternity Leave Was No Reason To Reduce Bonus
26, March 26, 2017 - Filed in: Court Cases
The recent decision of the B.C. Supreme Court in Sowden v. Manulife Canada Ltd. is noteworthy for its interpretation of a written agreement regarding bonus payments, and the court's reluctance to allow an employer to use an employee's maternity leave as a reason to reduce her bonus payment.
Janice Sowden was a regional marketing director for Manulife Canada Ltd. ("Manulife"). Her remuneration was made up of a base salary plus a variable bonus, calculated partly on her success in recruiting new financial advisors to work for Manulife. In essence, the more valuable the assets brought to Manulife by Ms. Sowden's recruits, the higher her bonus. Ms. Sowden had worked for Manulife for 20 years when she was dismissed in a corporate reorganization. In an earlier decision, the court had determined that Ms. Sowden was owed damages for wrongful dismissal based on a notice period of 20 months. This case concerned the calculation of those damages, especially her bonus for the 2012 year.
Ms. Sowden's recruiting target for 2012 was set at $125 million, and confirmed in a letter to her in March, 2012. When the target was set, Manulife knew that Ms. Sowden would be going on maternity leave later in the year, but did not adjust the target to take this into account. Manulife also advised Ms. Sowden that her bonus was capped at 135% of base salary.
Ms. Sowden exceeded the target four months early, landing a deal bringing in several new recruits and portfolios worth hundreds of millions of dollars. It was the most significant recruitment of her career and probably the largest ever for Manulife. In the period leading up to the deal, her supervisor made several statements to the effect that if she exceeded the recruiting target, she would be awarded appropriately and the bonus cap would not apply. To seal the deal, Ms. Sowden worked extremely long hours, right up until the day before she gave birth.
Contrary to Ms. Sowden's expectations, when Manulife paid Ms. Snowden her bonus in early 2013, it applied several deductions to the amount paid. Despite assurances to the contrary, Manulife applied the 135% bonus cap. In addition, it prorated the bonus to reflect the four months of maternity leave she took in 2012. Ms. Sowden returned to work in March 2013. She was notified in late May that her employment would be terminated nine days later.
In defending its bonus calculation before the court, Manulife relied on a term in the letter setting out her bonus entitlement which stated that "If you take an approved leave of absence your bonus will be prorated accordingly". The court found that the term could not apply, since Ms. Sowden had "an absolute right to maternity leave under s. 51 of the Employment Standards Act". It held:
[T]he recruiting portion represented a specific, calculable amount that [Ms. Sowden] had fully earned before her maternity leave. If the parties contemplated prorating of that amount, [Ms. Sowden] would have in effect been penalized for exercising her statutory right to maternity leave. I find the agreement cannot reasonably be read in that way and the recruiting portion of the bonus was not subject to prorating. [emphasis added]
Regarding the statements made to Ms. Sowden by her supervisor, the court reasoned that employment contracts differ from others in that they govern long-term, changing relationships: "[t]he terms of the contract may vary over time and may be implied by the court, based on conduct and the history of the relationship". Although the March letter set out certain terms of Ms. Sowden's employment, in the court's view, it did not constitute the entire contract, and it was possible to alter those terms through later discussions. Ms. Sowden's supervisor had "led [her] to believe", at several different points in time, that she could expect a bonus over and above what the March letter provided, if she landed the big deal. The agreement set out in the March letter had been varied by these statements so that the cap did not apply to the recruitment portion of the bonus derived from that deal.
Manulife had paid the plaintiff a bonus of $81,000 in 2013. After recalculation to reflect Manulife's various errors, the court determined that the bonus should have been $62,500 higher. Manulife also owed Ms. Sowden $320,000 in damages in lieu of notice. After deductions for certain payments it had already made, Manulife was found to owe Ms. Sowden $143,111.52.
Case law on the employment contract implications flowing from statutory maternity/parental leave is not common and can be inconsistent, so it interesting to see a decision in which the issue is painted in terms of "reasonableness". Leaves under the Employment Standards Act create clearly-defined statutory rights, but it is important to remember that these rights can affect the interpretation of an employment contract.
Employers would also be wise to take note of the court's conclusion that the employment agreement was modified by the supervisor's verbal statements. The interpretation of a contract is always carried out in light of the surrounding circumstances such as, in this case, the unusual scope of the recruiting effort. The court found it unlikely that Ms. Sowden would have worked as hard as she did until the last day of her pregnancy if she had not been led to believe that she would receive an additional bonus. The fact that her supervisor may have been purposely vague did not prevent the court from finding that the contract had been varied.
Note: This a reprint of an article by Laura DeVries of McCarthy Tétrault LLP.