Discretionary Bonus Explained: What It Means for Employees

Many employees are told their bonus is “discretionary.”
Often, that word is used to shut down questions — or justify non-payment.

In Canada, calling a bonus discretionary does not automatically mean an employer can withhold it. What matters is how the bonus actually works in practice, not just the label attached to it.

This guide explains what a discretionary bonus really is, how it differs from a guaranteed bonus, and when employees may still be legally entitled to payment.

What Is a Discretionary Bonus?

A discretionary bonus is a bonus where the employer claims to have flexibility over:

• whether a bonus is paid
• how much is paid
• who receives it

Unlike guaranteed bonuses, these are often described as:

• “at management’s discretion”
• “not guaranteed”
• “subject to company performance”

However, those phrases do not end the legal analysis.

Why Employers Call Bonuses “Discretionary”

Employers label bonuses discretionary to:

• maintain flexibility
• limit legal obligations
• avoid automatic payouts
• reduce severance exposure

In theory, a this type of bonus allows an employer to decide each year whether to pay anything at all.

Discretionary vs Non-Discretionary Bonus

Understanding the difference is critical.

Non-Discretionary (Guaranteed) Bonus

• It is written into an employment contract
• It is tied to clear performance targets
• It can be calculated using a formula
• Payment depends on meeting objective criteria

If the conditions are met, payment is usually owed.

Discretionary Bonus

• There is no formula or target
• Management decides whether to pay it
• The amount varies year to year

But discretion is not unlimited.

Can a Discretionary Bonus Still Be Owed?

Yes — in many cases.

Courts look at how the bonus actually operates, including:

• whether it has been paid regularly
• whether employees expect it as part of income
• whether performance is evaluated each year
• whether the bonus is a meaningful part of compensation

When a Discretionary Bonus Becomes Enforceable

A discretionary bonus may become legally enforceable when:

• it has been paid every year or nearly every year
• employees rely on it financially
• the employer evaluates performance before paying it
• the bonus forms a significant portion of total compensation

Can Employers Stop Paying a Bonus They’ve Paid for Years?

Sometimes — but not without risk.

An employer may be able to stop paying a bonus if:

• they clearly communicate the change
• they do not retroactively remove earned bonuses
• it truly remains discretionary

Problems arise when employers:

• suddenly stop paying without notice
• selectively deny bonuses
• use discretion inconsistently
• rely on vague or unclear policies

Past practice matters.

Common Discretionary Bonus Disputes

Disputes often arise when:

• a bonus is paid for years, then suddenly withheld
• an employee meets targets but receives nothing
• bonuses are paid to some employees but not others
• a bonus is excluded after termination
• a “discretionary” label conflicts with how the bonus was handled

These disputes are highly fact-specific.

What Evidence Helps?

Useful evidence can include:

• past bonus payment history
• performance reviews
• internal emails or memos
• compensation summaries
• bonus policies or plan documents

Discretionary Bonuses and Termination

If you are terminated without cause, a bonus may still be included in severance pay if:

• it would have been earned during the notice period
• it was a regular part of compensation
• the contract does not clearly remove entitlement

Employers frequently exclude bonuses by default — even when they may be legally owed

What to Do If a Discretionary Bonus Is Withheld

If your employer refuses to pay a discretionary bonus:

1. Review how the bonus was handled in past years
2. Check whether performance was assessed
3. Gather documentation showing consistency
4. Get legal advice before accepting non-payment

Discretion does not mean no rules.

Key Takeaways for Employees

• “Discretionary” does not automatically mean “not owed”
• Past practice can create enforceable expectations
• Consistency matters more than labels
• Discretion has limits
• Bonus disputes often involve significant money

When to Speak With an Employment Lawyer

You should consider legal advice if:

• a discretionary bonus you expected was withheld
• your employer changed bonus practices suddenly
• a bonus formed a major part of your income
• a bonus was excluded after termination