Bonuses — Ontario Employment Law

In Ontario, bonuses are a common part of employee compensation, but they are also a frequent source of workplace disputes. Many employees believe that if a bonus is labelled 'discretionary,' their employer has an absolute right to withhold it for any reason. However, Ontario law is more nuanced. Courts often distinguish between truly discretionary bonuses (which are rare) and those that have become an integral, expected part of an employee's annual earnings through consistent payment.

When an employee is terminated without cause, a major issue is whether their severance or pay in lieu of notice should include the bonus they would have earned during the reasonable notice period. The leading case law in Ontario establishes a two-part test: First, would the employee have been entitled to the bonus if they had continued working through the notice period? Second, does the employment contract or bonus plan contain clear and unambiguous language that removes the employee's right to the bonus upon termination? Courts scrutinize these clauses very carefully. Vague language or clauses that simply require an employee to be 'actively employed' on the payout date are often found to be insufficient to deny an employee their bonus entitlement as part of wrongful dismissal damages.

Furthermore, under Ontario's Employment Standards Act, 2000 (ESA), some non-discretionary bonuses may be considered part of an employee's 'wages,' which impacts calculations for things like vacation pay and public holiday pay. This is separate from the common law right to bonus payments during a notice period. Because the terms of a bonus plan and an individual's payment history are so crucial, understanding your specific rights can be complex. The interpretation of your employment agreement and bonus policy can significantly affect your total compensation, especially upon termination, making a careful review of your situation essential.