Discretionary Bonuses — Ontario Employment Law
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About Discretionary Bonuses
Many Ontario employment contracts contain clauses stating that an annual bonus is "entirely at the employer's discretion." Workers often assume this wording means they have no legal right to the money if the employer decides not to pay it, or if they are let go before the payout date. However, under Ontario employment law, the word "discretionary" is not a magic shield for employers. Courts look beyond the contractual label to examine the reality of the employment relationship.
In Ontario, if a so-called discretionary bonus is paid regularly and forms a significant or "integral" part of an employee's total compensation, judges will typically treat it as a legal entitlement rather than a mere gift. A true discretionary bonus is rare—it is usually a completely unpredictable, one-off gesture of goodwill, unrelated to specific performance metrics. Conversely, if your bonus is implicitly tied to company profits, personal targets, or performance fees, and you receive it year over year, common law courts will likely view it as a fundamental component of your wages.
This distinction becomes critical during a termination without cause. When calculating wrongful dismissal damages or reasonable notice periods, a worker is entitled to be "made whole" for the timeframe they should have been given working notice. This means their severance package should reflect their absolute total compensation—including base salary, benefits, and the value of any discretionary bonuses they would have earned during the notice period.
Employers frequently try to exclude these payouts by pointing to policies that require the worker to be "actively employed" on the date the bonus is distributed. However, Ontario courts have repeatedly struck down these limitations unless the limiting language is absolutely clear, legally enforceable, and was explicitly brought to the employee's attention.
Because the line between a purely gratuitous payout and an integral part of your regular earnings depends heavily on your specific history and the exact wording of your employment agreement, having a legal professional review your compensation framework is crucial before accepting a severance offer or walking away from unpaid earnings.
Frequently Asked Questions
Can my employer legally withhold a bonus just because the contract says it is discretionary?
Not necessarily. If the bonus has been paid consistently over time and forms a significant part of your overall income, Ontario courts often rule that it has become an integral part of your compensation. In such cases, an employer must exercise their discretion reasonably and in good faith, not arbitrarily.
If I am fired, am I still entitled to receive my discretionary bonus?
During your reasonable notice period under common law, you are generally entitled to all compensation you would have normally earned. If you historically received a seasonal or performance bonus, its average value should typically be included in your severance package, unless your contract contains a highly specific and enforceable exclusion clause.
How do courts calculate what a discretionary bonus is worth if the amount changes every year?
When an employee is wrongfully dismissed, judges typically calculate the damages for lost discretionary bonuses by averaging the amounts the employee received over the previous three to five years. This provides a fair estimate of what they would have earned during the notice period.
What if my employer's policy says I must be 'actively employed' to get the bonus?
Ontario courts heavily scrutinize 'active employment' clauses. Unless the language is excessively clear and explicitly removes your right to the bonus during the common law reasonable notice period, you may still be legally entitled to the payout.
When is the right time to speak with a lawyer about an unpaid bonus?
You should reach out to an employment lawyer immediately if your job is terminated and your severance offer only covers your base salary, or if an employer suddenly decides to withhold a substantial annual payment that you have historically relied upon as part of your livelihood.
Does the Employment Standards Act (ESA) protect my discretionary bonus?
The ESA distinguishes between non-discretionary bonuses (which are usually considered protected 'wages') and purely discretionary ones (which may not be). However, your common law rights are usually much broader than the ESA, allowing you to pursue lost bonuses as damages in court.
Common Scenarios
- An executive with a decade of service is terminated without cause in late December. Even though they worked the entire year and met all performance targets, the employer denies the year-end discretionary bonus, claiming the executive wasn't employed when the checks were cut in February.
- A portfolio manager receives a base salary of $80,000, but regularly earns an additional $50,000 to $70,000 annually through a 'discretionary' performance fee structure. Upon termination, the employer offers a severance package based solely on the $80,000 base salary.
- After a corporate buyout, new management announces that the annual 'discretionary' profit-sharing bonus—which staff have reliably received for six consecutive years—will be permanently eliminated for cost-cutting reasons, fundamentally altering the workers' take-home pay.
What You Should Know
- Keep records of your entire bonus history, including pay stubs, performance reviews, and any email correspondence detailing how the payment was tied to your personal or company targets.
- Never assume that the word 'discretionary' in your employment contract means you have zero rights to that income—courts look at the actual practice, not just the contract's label.
- If you are laid off, do not sign a final release or severance agreement without consulting an employment lawyer to determine if the value of your annual bonuses has been wrongfully completely excluded.
- Request a copy of the actual bonus plan or policy document, as employers must prove they clearly communicated any restrictive terms, like 'active employment' requirements, before enforcing them against you.
Featured Cases
B. v. JC Clark Ltd.
2022 ONCA 614 (CanLII) · 2022-08-29Appeal allowed in part: discretionary bonus awarded
This is an appeal from a trial decision involving portfolio managers claiming entitlement to performance fees and discretionary bonuses under their employment agreements. The Court of Appeal upheld the dismissal of the performance fee claims but allowed the appeal in part regarding the bonus. Finding that an employer's discretion to award bonuses must be exercised fairly and reasonably, the court awarded each manager a $115,000 bonus.
H. v. B.
2020 ONSC 2438 (CanLII) · 2020-04-24Reasonable Notice: 6.5-Year Foreman Awarded 7 Months
This case addresses whether an employer's requirement for an employee to sign a new agreement altering compensation and job title constituted constructive dismissal. The court determined that seven months' notice was reasonable for a foreman with 6 ½ years of service and ruled that the employee was entitled to compensation for lost discretionary bonuses during the notice period. The court also noted that summary judgment is appropriate where proportionality and fairness are satisfied.
Design Filtration Microzone Inc. v. C.
2018 ONCA 468 (CanLII) · 2018-05-18Wrongful Dismissal: 12 Months Notice Upheld for Engineer
This is an appeal from a motion judge's decision in a wrongful dismissal action involving a professional engineer with management experience. The Court of Appeal dismissed the appeal, upholding the award of 12 months' reasonable notice and a discretionary bonus for the termination year, finding no error in the motion judge's assessment of the relevant factors.
S. v. 30 Forensic Engineering Inc.
2018 ONSC 1092 (CanLII) · 2018-02-15Executive Compensation: ECM Interpretation & Bonus Dispute
This is a summary judgment motion concerning an executive compensation dispute where the plaintiff sought unpaid base salary and a discretionary bonus. The court interpreted the Executive Compensation Model (ECM) to determine entitlement to salary despite resignation and ruled that the discretionary bonus was earned and payable immediately. The court granted summary judgment, finding no genuine issue requiring a trial and precluding the defendant from raising unpleaded arguments.
B. v UBS
2016 ONSC 5362 (CanLII) · 2016-11-04Wrongful Dismissal: 14-Year Employee Awarded 18 Months Notice
This wrongful dismissal case involved a senior employee with 14 years of service who was dismissed without cause. The court applied the Bardal factors to determine an 18-month notice period and ruled that discretionary bonuses were integral to compensation, awarding damages based on total compensation including salary and bonuses.
F. v Canerector Inc.
2016 ONSC 6071 (CanLII) · 2016-10-04Wrongful Dismissal: Discretionary Bonus Appeal
An appeal to the Divisional Court from a motion judge's decision in a wrongful dismissal case regarding the calculation of damages for a discretionary bonus. The appellant argued that the motion judge erred in interpreting the employment contract, applying the doctrine of contra proferentem, and relying on anonymized data to calculate the bonus quantum. The Divisional Court found no error in the motion judge's interpretation or evidentiary choices.
F. v Canerector Inc.
2015 ONSC 7519 (CanLII) · 2015-12-07An appeal to the Divisional Court concerning the plaintiff's entitlement to bonus payments under an employment contract. The appeal challenges the motion judge's characterization of the bonus as discretionary, the denial of damages for failure to quantify, and the application of year-end employment preconditions. The court reviewed the principles governing bonus entitlement, quantification of damages where quantification is challenging, and the assessment of alternative quantification based on historical payments.
M. v. Scotia Capital Inc.
2009 CanLII 64183 (ON SC) · 2009-11-18Wrongful Dismissal: Reasonable Notice for 30-Year Employee
A wrongful dismissal case involving a plaintiff employed for over 30 years who was terminated at age 58. The court considered whether 24 months’ notice was appropriate under the Bardal factors and whether Wallace/Keays damages were available for economic loss absent bad faith. The defendant initially offered 18 months’ notice, later extended to 24 months. The court also addressed the fairness of a discretionary bonus awarded in 2006.
C. v. RBC Dominion Securities Inc.
2004 CanLII 66310 (ON SC) · 2004-06-30Wrongful Dismissal: Discretionary Bonus Adjustment and 12-Month Notice Award
A wrongful dismissal case involving a plaintiff who was terminated without cause. The court determined the plaintiff was entitled to 12 months' reasonable notice, full compensation during the notice period, and an adjustment to a discretionary bonus deemed unfair due to the termination. The court also considered mitigation expenses and awarded prejudgment interest.
G. v. ABN-Amro Bank
2003 CanLII 46275 (ON SC) · 2003-09-10Wrongful Dismissal: 31-Month Employee Awarded $60,000 Bonus
A wrongful dismissal case involving an employee who was terminated without cause after 31 months of service. The court addressed whether prior service with the employer counted toward the notice period, awarded $60,000 for a 1999 bonus, and found the employer’s bonus allocation unreasonable despite upholding its discretion. No additional damages were awarded for bad faith.