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CHAUDHRI: Fired but not forgotten – when replacement employee's bonus becomes evidence 

If the business thrives after a senior employee’s departure, courts may look at what comparable employees earned during the notice period

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Employers beware – a replacement employee’s paycheque could haunt you in court.

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In the recent case of Warren v Canaccord Genuity Corp, Ontario’s Superior Court has made clear that when it comes to bonus damages, dismissed executives may point to bonuses paid out even after their termination to support their own claim for damages in court.

CHAUDHRI: Fired but not forgotten – when replacement employee's bonus becomes evidence  Back to video

In Mr. Warren’s case, that argument translated into a $2.5 million damages award.

Mr. Warren, a managing director in the mining group at Canaccord Genuity Corp, was terminated without cause at the age of 52 after 18 years of service. The Court awarded him a 21-month notice period.

But the real battle ground was around how his bonus should be calculated over that 21 month post-termination period.

Like many senior investment bankers, Mr. Warren’s compensation was primarily bonus-driven. His base salary had remained static for years while his annual income depended largely on his bonus, which was tied to two factors: individual performance and the size of Canaccord’s Canadian Capital Markets bonus pool.

Over his 18 years of service, Mr. Warren’s bonus fluctuated dramatically, ranging from under $250,000 to more than $3 million.

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While Canaccord urged the court to use the familiar method of averaging bonuses over the three years preceding Warren’s termination, the court agreed with Mr. Warren who proposed a relatively novel method. Mr. Warren argued that the proper measure was not what he earned in the past, but what his successors, who assumed his responsibilities, actually earned during the 21-month notice period.

Wrongful dismissal damages are meant to place an employee in the position he would have been in had reasonable notice been provided. That exercise should be forward-looking. That said, judges have routinely awarded bonuses by looking backward, at previous performance to award damages.

Arguably this approach is reasonable as history can be a very reasonable predictor of what lies ahead – but not always.

During Mr. Warren’s notice period, Canaccord’s capital markets business was highly profitable. The bonus pool grew. The mining group evolved. Managing directors in comparable roles materially benefited from that upswing.

The court found that Mr. Warren would have as well.

In these circumstances, relying on a historical average risked understating his loss. The result was a damages award reflecting the compensation actually paid out during that profitable period – approximately $2.5 million in bonus-related damages.

In short, the replacement’s paycheque became evidence.

A Lesson To Employers: For employers, particularly in finance, tech, and other bonus-driven industries, the decision is a warning. Damages may not be capped by historical earnings. If the business thrives after a senior employee’s departure, courts may look at what comparable employees earned during the notice period.

That creates real exposure. A strong post-termination year can dramatically increase damages. Compensation of replacement hires may become central in litigation. Restructuring titles will not insulate an employer if the substance of the role remains comparable.

A Lesson for Executives: For executives, the message is equally significant. Damages are about what you would have earned, not simply what you used to earn. Where compensation is tied to performance metrics or bonus pools, courts may look to peers and replacements to quantify that loss.

In short, if your replacement prospers, that prosperity may be relevant.

– This column was co-written by employment lawyer Sunira Chaudhri and her associate Samantha Khaouli

Have a workplace problem? Maybe I can help! Email me at sunira@worklylaw.com and your question may be featured in a future column.

The content of this article is general information only and is not legal advice.

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