Incentive Compensation — Ontario Employment Law
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About Incentive Compensation
For many employees in Ontario, base salary is only one piece of the puzzle. Total earnings often rely on Short-Term Incentive Plans (STIPs), Long-Term Incentive Plans (LTIPs), Restricted Stock Units (RSUs), or carried interest structures. When an employment relationship ends, a frequent point of contention is whether an employee is entitled to compensation for these plans during their severance or reasonable notice period.
Under Ontario common law, a wrongfully dismissed employee is generally entitled to be placed in the same financial position they would have been in had they been permitted to work through a reasonable notice period. Courts view compensation holistically. If an incentive plan forms an integral part of your regular compensation, you are presumptively entitled to claim its value for the duration of the notice period. This applies even to complex financial instruments, so long as their value can be reasonably assessed.
Disputes typically arise when employers point to the fine print. Many incentive plans contain forfeiture provisions or state that the employee must be in "active employment" on the payout date. However, Ontario courts have repeatedly held that demanding "active employment" is usually insufficient to strip a common law right to damages. To legally deny incentive compensation during the notice period, the contract or plan document must use absolutely clear, unambiguous language that explicitly limits rights upon termination. Furthermore, attempting to rely on a restrictive policy that was never properly communicated to the employee will often fail in court.
There is also a statutory floor to consider. Under the Employment Standards Act, 2000 (ESA), an employer cannot reduce your regular wage rate or alter terms of employment during your statutory notice period. If particular incentives fall under the definition of "wages" within the Act, they must be included in basic termination pay calculations.
Assessing the enforceability of LTIP or STIP forfeiture language involves nuanced contract interpretation rather than a simple reading of the text. Having a qualified employment practitioner review your specific plan documents is an important step to ensure you are not leaving substantial earnings on the table.
Frequently Asked Questions
Do I lose my STIP or LTIP if I am fired before the payout date in Ontario?
Not necessarily. If the incentive forms an integral part of your compensation, you are generally entitled to its equivalent value if it would have been earned or paid during your reasonable notice period. An employer can only avoid this obligation if an unambiguously drafted and properly communicated contractual clause limits this right.
Can an employer enforce an active employment clause to deny my incentive payouts?
Historically, Ontario courts have ruled that simple active employment requirements do not erase your entitlement to incentive compensation during the common law notice period. To effectively deny the payment, the contractual language must explicitly state that the right to the incentive is lost during any period of reasonable notice.
Are Restricted Stock Units (RSUs) or carried interest treated differently than cash incentives?
The overarching legal principles treat them similarly. Regardless of whether the incentive is an RSU, carried interest, or cash, if it forms a core part of your total compensation, you are presumptively entitled to its value lost over the notice period. Courts will assess valuation based on specific methodologies if the loss is proven.
What if I was never shown the official incentive plan document?
If an employer introduces complex forfeiture preconditions but fails to bring those specific terms to your attention, their ability to rely on them is severely weakened. Courts frequently reject employer attempts to withhold compensation based on undisclosed documentation.
When should I ask a lawyer about my denied incentive pay?
You should seek legal guidance immediately if your employer presents a severance package that offers only base salary while ignoring STIP, LTIP, or equity portions of your pay. Strict deadlines often apply to severance offers, so rapid assessment of the plan's language is vital.
Does the ESA protect my incentive compensation?
Yes, if the incentive qualifies as wages under the ESA, it must be factored into your statutory minimum termination pay. An employer is strictly prohibited from altering your wages or terms of employment during the statutory notice period.
Common Scenarios
- A senior investment professional is dismissed without cause and denied a significant payout from a carried interest incentive plan due to a contractual precondition hidden in a policy manual they were never provided.
- A senior director is let go just weeks before annual STIP payouts are calculated, with the employer insisting they forfeit the bonus because they are not actively at their desk on the payment date.
- An executive with a decade of service receives a severance package that includes statutory termination pay calculated entirely on their base salary, unlawfully ignoring the heavy incentive structure that normally made up half their earnings.
What You Should Know
- Always preserve a home copy of your incentive plan documentation, annual compensation statements, and any emails explaining policy changes, as these can be crucial if you are locked out of the company network.
- Carefully scrutinize the release forms in a severance package; signing a release that fails to account for vesting RSUs or an impending STIP payout will permanently waive your rights to that money.
- Pay attention to when a forfeiture clause was introduced. If new restrictive terms were rolled out unilaterally long after you began earning the incentive, they may be legally unenforceable.
- Do not assume your employer's interpretation of an active employment clause is legally correct. Schedule a meeting with an employment lawyer to determine if the restrictive language actually holds up under Ontario law.
Featured Cases
K. v. GoEasy Ltd
2026 ONSC 3513 (CanLII) · 2026-06-16Wrongful Dismissal: 8 Months Notice & Inducement Claim
This wrongful dismissal case addressed whether an employer induced a senior employee from secure prior employment to increase the reasonable notice period, ultimately dismissing the inducement claim. The court determined an eight-month notice period based on Bardal factors, including the employee's senior management role and the availability of similar employment. Additionally, the court awarded pro-rated short-term incentive plan (STIP) and long-term incentive plan (LTIP) compensation during the notice period but dismissed claims for bad faith, punitive, and moral damages.
Maynard v. Johnson Controls Canada LP
2023 ONCA 392 (CanLII) · 2023-05-31Maynard v. Johnson Controls: Severance Pay Appeal
This is an appeal from a summary judgment decision concerning the calculation of termination pay and severance under an employment agreement. The Court of Appeal for Ontario dismissed the appeal, upholding the lower court's finding that the employer's Share and Incentive Plan forfeiture provision was undisclosed and that RSUs and bonuses must be included in the para. 16 payment calculation. The court also rejected the employer's argument that the agreement limited entitlements to Employment Standards Act minimums.
M. v. Royal Bank of Canada
2019 ONCA 609 (CanLII) · 2019-07-18Appeal on Incentive Plan Damages During 18 Months' Notice
This is an appeal to the Court of Appeal from a trial judge's decision regarding a dismissed employee's entitlement to incentive plan compensation. The employee was dismissed without cause, and the trial judge awarded 18 months' notice, $953,392.50 for lost opportunity under a carried interest plan, and $190,789.00 based on a foreign exchange methodology. The employer appealed the two incentive plan awards. The Court of Appeal allowed the appeal in part, setting aside the $953,392.50 award because the plan's terms clearly allowed the employer to terminate it, meaning the employee had no right to future uncreated funds. The court upheld the 18 months' notice and the $190,789.00 award because the plan was silent on foreign exchange risks.
L. v State Street Bank and Trust Company
2016 ONSC 7683 (CanLII) · 2016-12-07This is an appeal from a trial decision regarding an employee's claim for incentive compensation. The Divisional Court dismissed the appeal, finding no palpable and overriding error in the trial judge's determination that the employer's bonus policy precondition was not sufficiently communicated to the employee.
L. v OTPPB
2015 ONSC 3494 (CanLII) · 2015-06-01Wrongful Dismissal: 8-Year Employee Awarded 15 Months Notice
This wrongful dismissal case concerned a senior investment professional with eight years of service who was terminated without cause. The court found no legal cause for dismissal without notice, applying the McKinley framework to assess the proportionality of the alleged misconduct. The court fixed the reasonable notice period at 15 months, considering the employee's age, position, and difficulty finding alternative employment, and awarded incentive compensation payments for the notice period while rejecting the employer's unilateral contract amendments.
S. v. Mercer Human Resource Consulting Ltd.
2006 CanLII 22653 (ON SC) · 2006-06-30Wrongful Dismissal: Senior Professional Awarded 16-Month Notice Period
A wrongful dismissal case where a senior professional was terminated without cause and argued for a 17-month notice period. The court held 16 months as reasonable based on Bardal factors. The plaintiff also claimed incentive compensation during the notice period, which was partially awarded. The case addressed mitigation of damages, reimbursement for parking and health club expenses, and pre-judgment interest.
N. v. Canadian Imperial Bank of Commerce
2003 CanLII 21054 (ON SC) · 2003-10-09Wrongful Dismissal: Cause Upheld for 22-Year Employee
A wrongful dismissal case involving an employee with 22 years of service who was dismissed for facilitating improper transactions involving a common-law partner and nephew. The court determined that the conduct justified dismissal for cause. All claims, including those for mental distress and punitive damages, were dismissed, with 18 months’ notice assessed only in the alternative.