The inclusion of a bonus may drastically increase the amount owed over the course of a notice period upon dismissal. This blog seeks to highlight some concerns for both employers and employees in terms of how Ontario courts look at discretionary bonuses when an employee is dismissed.

What is a discretionary bonus?

A purely discretionary bonus would be determined based on the employer’s own internal decision making. In contrast, a non-discretionary bonus would be determined based on clear criteria. For example, it is common that a lot of employers may have a bonus plan that is set out in a company policy or that is included as a clause or attached to an employee’s employment agreement usually to be paid based on some sort of system or upon certain triggers such as the employee’s performance or targets or the profitability of the employer.

However, as we will see below whether a bonus is “discretionary” can be more complicated than simply what is set out in an employment contract. This is because in many instances involving discretionary bonuses, courts will look at various factors to determine if the employee ought to be compensated for a bonus he or she would have received had a reasonable notice of termination been given.

Common factors that Ontario courts have looked at in terms of whether a discretionary bonus would be owed are things like:

• Did the employer provide a bonus to the employee in the past and, if so, at what frequency? Was the bonus paid consistently, in the same manner and over the course of many years?
• Did the employer have a transparent process in determining if an employee is owed a bonus?
• Did the employer pay other employees who were in a similar position to the employee a bonus?
• What does the employment agreement say about whether a bonus is owed?

Are employees entitled to a discretionary bonus upon dismissal?

The bottom line is that to ascertain whether an employee is entitled to a discretionary bonus is a fact-specific inquiry that will need the assistance of an employment lawyer to determine the answer based on the employee’s unique set of circumstances. For instance, if an employer wishes to rely on contractual exclusionary language in an employment agreement to deny the employee a bonus upon dismissal, the wording must be very precise and clear.

Ontario courts really care about whether the employer has exercised their discretion in relation to a bonus in a fair and reasonable manner. The employment contract may not even have specific wording about how a bonus should be provided (or at all) only that it will be based on the employer’s “discretion.” Ontario courts have held in past cases that it will be in fact an implied term of an employment contact that the determination of whether or not an employee is owed a discretionary bonus will be exercised in a fair and reasonable manner. The overall context of the employment relationship will be examined, and employers do not have a complete unfettered right to exercise their discretion.

How Zeilikman Law can help!

Both employers and employees should approach an employment lawyer if they have questions related to how to treat discretionary bonuses upon dismissal. Each case is unique and an employment lawyer should go over the circumstances of the matter at hand in order to guide the employer or employee.

If you would like to read more about this topic, please review our additional blog entitled Am I Entitled to a Bonus Even After I was Dismissed From My Job?.

Zeilikman Law can be reached via telephone at (905) 417-2227 or contact us here online for a confidential consultation.