Bonus Payouts: Your contract is everything

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By: Rebecca Meharchand

Bonuses are common in compensation because employers have a direct interest in ensuring that employees feel valued and rewarded for their hard work. Typically, a bonus is paid once a year, often at a set time in the year.

Because bonuses are usually paid once per year, we often get the question – what if an employee leaves their job before their bonus is paid? Are they still entitled to receive it?

The question of whether or not an employee is entitled to their bonus upon leaving their job is not so much a question of whether they are terminated by the employer or whether they resign, but rather, whether the bonus has already been earned and is payable at the time of departure. As such, the answer will almost always depend on the language of the employment contract.

This is something that the Supreme Court of Canada addressed in the case of Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26 (CanLII). Specifically, the two questions an employer must consider are the following:

  1. Would the employee have been entitled to the bonus or benefit as part of their compensation during the reasonable notice period?
  1. If so, do the terms of the employment contract or bonus plan unambiguously take away or limit that common law right?

Looking at the first question, whether or not the employee is entitled to their bonus really depends on when they leave their position, the notice period they are subject to, as well as the language of their contract. If an employee is entitled to their bonus upon performance of a specific task (ie. hitting a certain sales target), and that task was completed before their departure from the company, consider that they may be entitled to receive that bonus payment.

However, that is not the end of the story. Under the second question, we have to then turn our attention to the employment contract and see whether there are any terms within the contract that unambiguously limit the employee’s right to receive their bonus. 

If, for example, the employment contract states that the employee must be working for the employer at the time that bonuses are paid in order to be paid their bonus, then they may not be entitled to their bonus if they leave the company before that date. This language must be clear and unequivocal in order for it to be enforceable.

Whether or not an employer can withhold a bonus from an employee is highly dependent on the language of the employment contract, and that’s why you should have your contracts reviewed now to make sure the contracts are protecting your business. For more information relating to bonuses and employment contracts, contact us at Seabrook Workplace Law.

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