Does Being Terminated Revoke my Right to my Bonus?

Employees often consider a monetary bonus to be a foundational part of their employment compensation. Employees may rely on these bonuses, and further, consider them as an essential part of their pay.

If an employee is terminated prior to their expected bonus payout, they may be concerned about whether they will receive the bonus they had come to expect during their employment.

If you have been dismissed from your employment and are concerned about whether you are owed a bonus, we recommend contacting us at Sultan Lawyers to explore your rights and options. You may be entitled to these additional incentives, which can be of great significance. 

While employers may be able to terminate an employee at any time, the Supreme Court of Canada has shown that under particular circumstances terminated employees are entitled to their bonuses.

Would You Have Normally Received a Bonus?

The first consideration is whether an employee would have been eligible for the bonus regardless of being terminated or not. An employee can do this by assessing whether they would have sufficiently met their employment standards to receive a bonus, had they not been terminated.

Determine How You Were Terminated

It is important to remember that employees have certain rights when their employment comes to an end. Employees can be terminated “with cause” or “without cause”. Employees who have been terminated “without cause” are entitled to notice of their termination, as well as potential bonuses following termination. Alternatively, employees who are terminated with cause are not entitled to either. 

Working Notice

Employees who have been terminated without cause can be provided with working notice. This means that the employee continues working in their role for the notice period, up until the end of their employment. The length of notice an employee is entitled to depends on various factors.

If an employee has working notice, they are entitled to the bonus they would have normally received while they work out the notice period.

Pay in Lieu of Notice

Employers can also provide pay in lieu of working notice. This is when the employee would be terminated immediately but offered pay equal to what they would have received had they worked the notice period.

If an employer presented pay in lieu of notice, the employee would be entitled to the bonus they would have received had they worked the notice period.

For example, if an employee is provided 4 months of pay in lieu of notice, they would then receive 4 months of pro-rated bonus.

The Supreme Court of Canada in 2020 proved that pay in lieu of notice must include all compensation and benefits that the terminated employee would have earned during the notice period, including their bonus. This could even include a “discretionary” bonus.

Regardless of the structure of your notice period, an employer is responsible to “make you whole” for the length of your notice period. Receiving your bonus can often be a part of this.

Will I Get My Bonus Upon Termination?

It depends. Not every employee is entitled to their bonus upon their termination.

Dismissed employees are entitled to their bonus if the bonus was “integral” to their compensation from their employer. Bonuses are “integral” when:

1. The employee receives various incentives each year, in different amounts
2. Bonuses are to remain competitive with other employers
3. Bonuses are historically awarded, and the employer has always awarded the employee a bonus despite having the discretion not to
4. The bonus made up a significant part of the employee’s total compensation package

What will the Court Look at When Determining Bonus Entitlement?

Courts will typically ask two questions when finding whether a dismissed employee is eligible to receive their bonus payments:

1. Would the employee have gotten their bonus if they had worked for the length of their particular notice period?
2. Do the terms of the employee’s employment contract clearly take away the right or limit the employee’s right to the entitlement of their bonus?

Can The Termination Clause in My Employment Agreement Effect My Bonus?

A straightforward answer would be yes. An employment agreement that has a termination clause could affect an employee’s right to their bonus after termination. To avert an employee’s right to their bonus, the termination clause would have to clearly set out that the employee’s right to the bonus is withdrawn upon the termination of their employment. 

In order for a termination clause to have the power to restrict a dismissed employee’s right to their bonus, it needs to be unambiguous and not breach any legal employment standard, such as Ontario’s Employment Standards Act.

Entitled To Current and Future Annual Bonuses

There is potential a terminated employee could receive the annual bonus they have already earned as well as a bonus for the following year. 

Simply put, an employee can receive current and future years of bonuses if their notice period extends into the next year. The bonus entitlement for the following year would be for a pro-rated amount equal to the length of time their notice falls into the next year.

This was proven at the Ontario Court of Appeal in Andros v. Colliers Macaulay Nicholls, when the Court stated that the employee was entitled to “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 Entitlement After Termination

Bonus calculation for the current year

This calculation will be based on the established bonus formula the employee would have been subject to at their former employers. The method of calculating the bonus would remain the same, whether the employee was terminated or not.

Bonus calculation for the year following termination

If an employee’s notice period continues through the following year, the amount of the bonus should be based on an average of the three previous annual bonuses for the employee. This total would be pro-rated to the length of the remaining notice period.

CONTACT SULTAN LAWYERS FOR MORE INFORMATION

We encourage you to contact Toronto employment lawyers, Sultan Lawyers, for a free call back or flat-rate consultation to understand your rights and the options available to you in relation to bonus entitlements for terminated employees. Please contact us by telephone at 416-214-5111 or here.