Bonus After Termination

Can Your Employer Reduce Your Salary?

Many employees ordinarily receive a bonus in addition to their base salary. If such an employee is terminated from their employment prior to receiving the bonus they expect to receive, they may be wondering whether or not they are still entitled to that bonus. In many cases, they will be.

When will you be entitled to your bonus?

When an employee is terminated on a without cause basis, they will be entitled either to a working notice period or to pay in lieu of notice. The amount of compensation an employee earns through pay in lieu of notice should reflect what the employee would have earned during the notice period had they actually worked it. Whether or not bonuses should form part of this compensation was addressed by the Ontario Court of Appeal in Paquette v TeraGo Networks Inc (2016 ONCA 618), which was later approved by the Supreme Court of Canada in Matthews v Ocean Nutrition Canada Ltd (2020 SCC 26).

In determining whether a dismissed employee continues to be entitled to their bonus, the Supreme Court of Canada says two questions must be asked:

  1. Would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period?
  2. If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right?

If the answer to the first question is yes, and the answer to the second is no, then the employee should continue to be entitled to their bonus.

The effect of an “active employment” clause

In Paquette, the Ontario Court of Appeal considered whether a dismissed employee could be denied their bonus because the contractual terms of the bonus required that they be “actively employed.” In the lower court, the motion judge denied the employee damages for lost bonus because the employee was not “actively” employeed during the notice period. On appeal, the Court held otherwise. The employee’s claim for damages was not for the bonus itself, but rather was for the income the employee would have received had the employer not breached the employment contract by failing to give reasonable notice. The result is that an “active employment” requirement does not prevent a dismissed employee from recovering that bonus if they would have received the bonus during the notice period.

Bonus Paid Outside Notice Period?

Based on the above, an employee should receive their bonus if they would have earned it in any event had they worked through their notice period. However, what happens if an employee is on track to receive their bonus but their notice period ends slightly before that bonus becomes available? Imagine, for instance, that the notice period ends the day before the bonus becomes available. Should that employee nevertheless receive their bonus? According to the Ontario Court of Appeal in Andros v. Colliers Macaulay Nicolls Inc. (2019 ONCA 679), not allowing such an employee to seek at least a pro rata (i.e., proportional) share of their bonus would result in untenable unfairness. Instead of asking whether the bonus would have been received, the better question, therefore, is whether the bonus was earned (or even partially earned). The employee should receive the share of the bonus they earned had the employer not breached the employment contract. As a result, despite the notice period not actually reaching the day the bonus would ordinarily be paid, the employee should still be compensated.

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