Bonuses and Severance Pay: What Happens to Your Bonus After Termination?

When an employee is terminated without cause, severance pay is meant to replace everything they would have earned if proper notice had been given — not just base salary.

That includes bonus pay.

In Canada, disputes over severance pay frequently come down to one question:

Is the bonus part of the employee’s compensation — or can the employer exclude it?

This guide explains how bonuses are treated after termination, what courts actually look at, and what employees should know before accepting a severance package.

Are Bonuses Included in Severance Pay?

Often, yes.

Under Canadian common law, severance (also called pay in lieu of notice) is intended to put the employee in the same financial position they would have been in if they had continued working during the notice period.

That typically includes:

• Base salary
• Regular bonuses
• Commissions or incentives
• Benefits and allowances

Why Employers Try to Exclude Bonuses From Severance

Many severance packages exclude bonuses by default. Employers often rely on clauses that say:

• You must be “actively employed” on the bonus payout date
• Bonuses are “discretionary”
• Bonuses are not payable after termination

These clauses are frequently challenged.

What Courts Look At When Deciding Bonus Entitlement

Courts focus on substance, not spin.

Key factors include:

• How consistently the bonus was paid in past years
• Whether the bonus can be calculated using a formula or targets
• How important the bonus was to overall compensation
• Whether the employee would have earned the bonus during the notice period
• How clearly the contract limits bonus entitlement after termination

“Active Employment” Clauses Explained

One of the most common disputes involves clauses stating that an employee must be actively employed on the bonus payment date to receive a bonus.

These clauses:

• Do not automatically defeat a bonus claim
• Must be clear, unambiguous, and enforceable
• Are interpreted strictly against employers

If the clause does not clearly remove bonus entitlement during the notice period, you may still receive bonus as part of severance.

Discretionary Bonuses and Severance Pay

Employers often argue that a bonus is discretionary and therefore not owed after termination.

That argument doesn’t always succeed.

A “discretionary” bonus may still be included in severance if:

• It was paid regularly
• Employees expected it as part of their income
• It was tied to performance, sales, or results

What If You Were Fired Before Bonus Day?

Being terminated shortly before a bonus payout date is a very common scenario.

You may still be entitled to the bonus if:

• The bonus would have been earned during the notice period
• The termination prevented you from remaining “actively employed”
• The bonus plan does not clearly exclude payment during notice

Bonuses, Working Notice, and Garden Leave

If you are:

• Given working notice, or
• Placed on paid leave during the notice period

You may still qualify for bonuses that fall within that period, provided you meet the applicable conditions.

Bonuses vs Retention Bonuses

Not all bonuses are the same.

• Regular bonuses reward past or ongoing work
• Retention bonuses are often offered during restructuring to keep employees temporarily

Retention bonuses may come with:

• Fixed end dates
• Repayment clauses
• Legal releases

They are treated differently from ordinary bonuses and can affect severance rights.

What to Do If Your Severance Package Excludes Your Bonus

If your bonus is missing from a severance offer:

1. Don’t assume the employer is right
2. Don’t rely on HR explanations alone
3. Don’t sign a release without advice

Bonuses can add months of extra compensation to a severance package — especially for senior or commission-based employees.

A short legal review can often identify whether:

• A bonus was wrongly excluded
• A contract clause is unenforceable
• Additional compensation is owed

Key Takeaways for Employees

• Severance is meant to replace total compensation, not just salary
• Bonuses are often included in severance pay
• “Discretionary” does not automatically mean “not owed”
• “Active employment” clauses are frequently challenged
• Timing your termination around bonus dates matters

When to Speak With an Employment Lawyer

You should consider expert legal advice from an employment lawyer at Samfiru Tumarkin LLP if:

• Your bonus was excluded from a severance package
• You were fired shortly before bonus payout
• Your employer relies on unclear contract language
• The bonus makes up a significant part of your income