Do you still get your bonus when you’re fired or laid off?

Yes, you are still entitled to any bonus pay you’ve earned when you are let go or laid off. This applies to all employees in Canada, including Ontario, Alberta and B.C.

How to determine if you are owed your bonus after being let go

Determining the answer starts with the following question: If you hadn’t been terminated, would you have been eligible for or received the bonus or incentive compensation? In other words, if you had continued to be employed up to the date this payment was expected, did you sufficiently meet the criteria that would entitle you to receive the bonus?

Next, you need to consider the language in both your employment agreement and the terms of the incentive plan, and how those two documents interact.

When you are let go from your job, specific language and terms in your employment agreement will determine, among other things, the length of your notice period or the amount of severance pay you are owed.

During the notice period, your previous employer is responsible for any losses flowing from your termination. Your previous employer is required to “make you whole” for the length of the applicable notice period, whether that is a few weeks, or many months. If you can demonstrate that you would have earned or been paid your bonus if you had worked during the notice period, you may be able to claim entitlement to the loss of this value.

If you have been let go from your job and are still owed a bonus, contact our team immediately to determine what your rights and legal options are before making assumptions. You may not only be owed that expected bonus, the amount of severance you have been offered may be far less than what you are truly entitled to. Our employment lawyers in Ontario, Alberta and British Columbia have secured full compensation for tens of thousands of Canadians.

Matthews v. Ocean Nutrition Canada Ltd.

Oftentimes, the terms of a bonus or incentive plan stipulate that “active employment” is required. As confirmed by the Supreme Court of Canada in Matthews v. Ocean Nutrition Canada, the existence of this language does not automatically disentitle an employee from payment of their bonus or incentive. In order for a term contemplating “active employment” to successfully exclude an employee’s entitlement to a bonus payment after termination, the language in the plan must be both:

• Absolutely clear and unambiguous; and
• Must clearly cover the exact circumstances which have arisen.

For instance, if the incentive plan only refers to the loss of bonus pay in circumstances of a termination for cause or without cause, it may not be enforceable where the employee’s dismissal is wrongful (the employee is let go without receiving the proper notice or severance pay).

In many cases, bonus or incentive plan documents are drafted by the employer and without negotiation or consultation with the employee. If the employer alone drafts the documents, the courts will “strictly construe” the terms of the document, and will rely specifically on the language used rather than taking steps to interpret the employer’s intended meaning. If interpretation is required, then the courts will find in the manner most favourable to the employee.

What the courts will look at

In accordance with the Matthews decision, the courts will ask two questions when determining whether bonus payments continue to be payable to a terminated employee:

1. Would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period? In other words, would the employee have received their bonus if they continued to work for the entire duration of the notice period that applies in their case; and
2. If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right? Put differently, is the language of the plan document sufficiently clear and unequivocal in limiting an employee’s entitlement to their bonus.

An additional factor

Another factor the courts may consider is whether or not the bonus or incentive pay is “integral” to the employee’s compensation. This applies where some or all of the bonus amount is defined as “discretionary”. If there is doubt as to whether the employee would have earned the “discretionary” bonus during the notice period, the courts will consider factors such as the history of the employee’s bonus payments and the value of the bonus as a component of compensation (i.e. what percentage of the employee’s earnings are tied to the bonus payment). As established by Sanghvi v. Norvic Shipping North America, a bonus will be considered integral where it is a significant and consistent part of the employee’s total compensation.