$680,000 in wrongful damages included performance bonus, stock units — but not bonus during notice period
A recent Ontario Superior Court decision addresses how a court will assess wrongful dismissal damages where there is no enforceable termination provision in an employment agreement and, more importantly, how the elements of compensation an employee may be entitled to during the reasonable notice period might be determined.
In Adelman v. IBM Canada Limited, 2026 ONSC 420, the Ontario Superior Court of Justice awarded a former senior executive more than $680,000 in damages following his termination without cause, with significant emphasis on a bonus earned prior to termination, as well as equity entitlements during the reasonable notice period.
The employee was a 59-year-old senior executive with approximately 18.5 years of service, who was terminated without cause in January of 2023. His employment agreement with IBM did not contain provisions dealing with termination or corresponding entitlements (or disentitlements).
Following termination, IBM did not pay him a discretionary bonus for the 2022 performance year, claiming that it reflected his performance on a project that generated no revenue. It also did not provide him with the value of certain unvested restricted stock units (RSUs) and stock options. The employee commenced an action for wrongful dismissal, seeking 24 months’ reasonable notice, including damages for bonuses, RSUs, and stock options that would have vested during the notice period, as well as aggravated and punitive damages for IBM’s cancellation of his RSUs and stock options.
Employer’s sole discretion doesn’t mean arbitrary
The Court awarded a 24-month reasonable notice period based on the employee’s age, significant length of service, seniority, and limited comparable employment opportunities (as confirmed by the employee’s unsuccessful job search of several years post-termination), holding that compensation during the notice period included base salary, benefits continuation, and pension contributions.
As it pertained to the 2022 bonus, the court assessed both documentary and witness evidence to determine that IBM’s decision to deny the 2022 bonus was based on the employee’s separation from the company, rather than IBM’s explanation pertaining to his performance, and that this decision was unfair and unreasonable. The court relied on precedent decisions to state that:
“Simply because a bonus is awarded in the sole discretion of an employer does not mean that it can be done in an arbitrary or unfair fashion or that the employer can decide that an employee should not get a bonus without following a fair, identifiable process.”
As such, the court awarded a bonus based on the average of the employee’s bonuses from the two preceding years.
Bonus not ‘integral’ part of compensation for notice period
However, the court also decided that there was no entitlement to bonus on a go-forward basis during the reasonable notice period, as it was not found to have been an “integral” part of the employee’s compensation. In determining whether the bonus was integral, the court assessed three factors using a well-established legal test: whether the employee received a bonus each year, whether the bonuses were required in order for IBM to remain competitive with other employers, and whether bonuses were historically awarded and IBM ever exercised its discretion. Finding that the bonus was discretionary, varied significantly, and was not a substantial component of compensation, the court held that the employee was not entitled to damages for lost bonus during the notice period. Interestingly, the court observed that there was no evidence that payment of bonuses was required for IBM to stay competitive (in fact, an IBM witness testified that IBM used base salaries, not bonuses, to attract and retain employees). Having reached its conclusion on the integral-component test, the court did not need to consider IBM’s assertion that there was clear language limiting the employee’s right to the bonus once he ceased to be actively employed by IBM.
With respect to RSUs and stock options, the court held that IBM’s cancellation of the employee’s RSUs and stock options was contrary to law, as the governing documents did not unambiguously extinguish his common law rights during the reasonable notice period which would be required for IBM to establish disentitlement. Damages were calculated based on the employee’s usual practice of holding equity for 402 days before selling, using market values on the implied sales dates.
Finally, the court found no evidence of mental distress beyond the normal distress of termination or conduct by IBM that rose to the level of bad faith or high-handedness required for aggravated or punitive damages.
Equity part of total compensation without express disentitlement
The Adelman decision involved two distinct bonus questions, and the court reached a different conclusion on each. While IBM was not successful on the pre-termination year bonus because its internal documents suggested the real reason for the non-payment (separation, not performance), the notice period bonus claim failed on the basis of the integral-component analysis.
Overall, the bigger driver of damages in the case ended up being the 24-month notice period itself, and the improper cancellation of RSUs and stock options, which together pushed the total award to over $680,000. As equity often represents a substantial percentage of total compensation for executives, this case is a notable example of how wrongful dismissal exposure can easily reach six or seven figures.
Practically, employers should conduct audits of their bonus and equity plan language to ensure enforceability and routinely review employment agreements to confirm termination clauses. If the language is ambiguous, inconsistent, or poorly drafted, this will be held against the employer.
However, in addition to those practices, Adelman reinforces that beyond employee-facing documents, employers should ensure that internal documentation and communication around bonus decisions is deliberate and consistent, as even seemingly innocuous correspondence or documentation can be relied upon in a dispute or litigation.
Dasha Peregoudova is a partner at Aird & Berlis LLP in Toronto. Lorenzo Lisi is the leader of the Workplace Law Group at Aird & Berlis in Toronto.
