Bonuses during the notice period in Ontario

When you’re let go without cause, two kinds of “notice periods” can matter:

• Statutory (ESA) notice: the minimums in Ontario’s Employment Standards Act, 2000 (ESA). During working notice, your employer must keep your wage rate and other terms and conditions of employment unchanged. If they give pay in lieu of notice, it must equal what you would have received during working notice.

• Common-law notice (reasonable notice): a longer period a court may award based on your age, service, role, and job market if your contract’s termination clause is invalid or doesn’t apply.

Here’s how bonuses fit into each.

1) ESA notice: do bonuses continue?

Under the ESA, “wages” include monetary amounts you’re entitled to under your contract or policy. Non-discretionary or performance-linked bonuses (e.g., commission plans, target bonuses with a formula) typically count as wages. Purely discretionary bonuses (a true gift, not tied to performance) generally do not.

Practical upshot

• If your bonus is non-discretionary, your employer should include it for the statutory notice period—either by continuing it during working notice or by cashing it out in a pay-in-lieu amount.

• If it’s a true discretionary gift unrelated to performance, the ESA may not require it during the statutory period.

2) Common-law notice: the two-step bonus test

Courts use a straightforward approach (often called the Paquette/Matthews framework):

1. But for the dismissal, would you have received the bonus during the reasonable-notice period? If yes, the starting point is that it’s part of your damages.

2. Does the plan clearly and unambiguously take that right away? If the plan’s “active employment/on payroll/termination = forfeiture” language isn’t crystal-clear (and compliant with minimum standards), employees usually still recover the bonus.

Courts may also:

• Prorate bonuses across the notice period (and sometimes for the stub period worked before termination).

• Apply the same analysis to deferred or notional share bonuses.

3) “Discretionary” vs. “earned” vs. “payable” (why wording matters)

• Calling a plan “discretionary” doesn’t give employers a blank cheque; discretion must be exercised fairly and in good faith.

• Plans often say a bonus is only “payable” on a future date and only if you’re “actively employed.” Courts focus on when it’s earned and whether the plan clearly shifts risk after termination. An “active employment when paid” clause—without more—usually isn’t enough to defeat bonus damages during common-law notice.

4) What employees should do (checklist)

1. Collect the paperwork: offer letter, bonus plan text, annual award letters, policy manuals, and any “active employment” or forfeiture clauses.

2. Classify the bonus: formula/target (likely non-discretionary) vs. truly discretionary gift; tie it to the ESA “wages” concept.

3. Map two scenarios:

   • ESA minimums: include non-discretionary bonus amounts for the statutory notice window.

   • Common law: apply the two-step test across your likely reasonable-notice period; calculate pro-rations if the cycle straddles that period.

4. Stress-test plan language: look for “active employment,” “no bonus after termination for any reason,” and releases tied to payment. Only unambiguous and lawful language can defeat common-law bonus damages.

5. Negotiate structure: if timing or wording is shaky, seek cash in lieu, pro-rating, or explicit inclusion of the bonus cycle during the bridge to your next role.

5) Quick examples

• Annual target bonus paid in March for the prior year; you’re terminated in December with 18 months’ reasonable notice.
  You may be owed (a) the prior year’s bonus you effectively earned, and (b) a prorated bonus for part/all of the notice period—unless the plan clearly and lawfully excludes both.

• Sales bonus tied to monthly KPIs (non-discretionary).
  For the ESA notice window, it typically forms part of wages and should be included even if the employer pays a lump-sum in lieu of notice.

6) Common employer arguments (and how courts treat them)

• “You weren’t actively employed on payout day.” → Usually not enough on its own to defeat common-law bonus damages.

• “The bonus is discretionary.” → Labels don’t control; discretion must be exercised fairly and in good faith.

• “The bonus vests later, so it’s not owed.” → Deferred structures can still be owed if you’d have received them during notice and the plan doesn’t clearly exclude them.

Bottom line

• During statutory notice, non-discretionary bonuses are usually part of wages and should be continued or cashed out.

• During common-law notice, bonuses (including deferred plans) are typically recoverable if you would have received them but for the dismissal and the plan doesn’t clearly and lawfully take them away. “Active-employment” wording alone rarely suffices.

If your bonus is being withheld, compare the plan wording to the two-step test and the ESA definition of wages, then negotiate from there—or get legal advice.