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Termination And Bonus Law In Ontario
Generally, yes, Ontario employees are entitled to their bonus after termination.
In Ontario, employees who are terminated without cause are entitled to “notice” of termination. Employers can provide working notice or pay in lieu of notice. Working notice is when an employee is asked to stay on for the notice period. Pay in lieu of notice is when the employee is terminated immediately but receives a severance package equal to what he or she would have received had they worked the working notice period. Most employers select pay in lieu of notice instead of working notice when they let their employees go.
If an employee is provided working notice, then they would be entitled to the bonus they normally receive while they work the working notice period.
Likewise, if an employee is given pay in lieu of notice instead of working notice, he or she should be given the bonus he or she would have received had they worked the working notice period. For example, if someone is provided six months’ pay in lieu notice, they should be provided six months of a pro-rated annual bonus. The courts agree that pay in lieu must include all the compensation and benefits the terminated employee would have earned during the notice period had they worked it, including their bonus (see Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26.) This can be the case even where a bonus is described as “discretionary”.
Does Every Employee Get Their Bonus Upon Termination?
No, not every employee will be entitled to their bonus upon termination in Ontario.
Terminated employees are generally only entitled to their bonus if the bonus was an “integral” part of their compensation: Paquette v. TeraGo Networks Inc., 2016 ONCA 618. Bonus are said to be “internal” where:
- the bonus is received each year although even in different amounts;
- bonuses are required to remain competitive with other employers;
- bonuses were historically awarded and the employer never exercised its discretion not to award a bonus against the employee; and
- the bonus constituted a significant component of the employee’s overall compensation.
Moreover, some employment contracts may contain a termination clause that restricts the right to a bonus upon termination. However, the terms of the contract restricting the right to a bonus upon termination must be unambiguous and they must not breach any employment standard. Also, to the extent that there are limitations to a bonus after termination, questions may arise as to whether they were brought to the attention of the employee or whether the employee was provided proper consideration for the same in case the bonus terms were created after the employee started employment.
Call our law group for a free consultation to review your contract to determine whether your bonus plan is enforceable or not. Contact us now.
Do Terminated Employees Need To Be Actively Employed On A Certain Date To Receive Their Bonus?
In the precedent-setting decision of Paquette v. TeraGo Networks Inc., 2016 ONCA 618, my firm, Monkhouse Law, was successful in arguing that an “active employment” requirement for a bonus in an employment contract does not prevent an employee from being compensated for their bonus during the notice period if the notice period extends to the “active employment” date. For example, if someone is provided a six-month notice period, and the notice period falls on the “active employment” date, then they would be entitled to their bonus.
Do Terminated Employees Get The Annual Bonus They Already Earned And Next Year’s Bonus?
Yes, a terminated employee should generally receive both the current year’s bonus that has already been accrued and the bonus for the following year (pro-rated) if the notice period extends that long. In Andros v. Colliers Macaulay Nicholls, 2019 ONCA 679, the Court of Appeal held that where a bonus is an integral part of the employee’s compensation and it is non-discretionary, compensation should include “both the bonus earned before being terminated and the bonus that would have been earned during the notice period, unless the terms of the bonus plan alter or remove that right.”
How to Calculate A Bonus After Termination in Ontario
Bonus payments that have already accrued for the current year should be based on the bonus formula the employee would have been entitled to had they worked until the bonus payout date. Contrariwise, generally, future bonus payments over the notice period should be based on an average of the bonuses the employee earned in the three previous years: see Bernier v. Nygard International Partnership, 2013 ONCA 780.
Jeff is a lawyer in Toronto who works for a technology startup. Jeff is a frequent lecturer on employment law and is the author of an employment law textbook and various trade journal articles. Jeff is interested in Canadian business, technology and law, and this blog is his platform to share his views and tips in those areas.