Canada: Avoiding Bonus Payments To Terminated Employees Just Got Tougher

On August 9, 2016, the Ontario Court of Appeal released two decisions addressing employee entitlement to damages in lieu of a bonus on termination.

Generally speaking, the Court confirmed the principle that if a bonus forms an integral part of an employee's total compensation package then, in a wrongful dismissal action, he or she is entitled to damages in lieu of the bonus unless there is enforceable bonus plan language that limits the employee's entitlements. Where such language exists, it will be strictly construed.

The two decisions are summarized below:

Paquette v. TeraGo Networks Inc.

In Paquette, a 49-year-old employee with 14 years of service was terminated without cause. At the time of his termination, he held the position of Director, Billing and Operations Support Services. He sued for wrongful dismissal and brought a summary judgment motion to determine his entitlements. At the summary judgment motion, he was awarded 17 months of pay in lieu of notice, calculated as his base salary and benefits. He sought compensation for his lost bonus over the 17 month notice period, but this relief was denied by the motion judge, who held as follows:

I conclude that Mr. Paquette is not entitled to any bonus payments. Although the Bonus Program at TeraGo was an integral part of Mr. Paquette's employment, there is no ambiguity in the contract terms of the Bonus Program. Mr. Paquette may be notionally an employee during the reasonable notice period; however, he will not be an "active employee" and therefore, he does not qualify for a bonus.

The employee appealed. He was successful.

In arriving at its decision, the Court of Appeal relied on earlier bonus-related jurisprudence which, among other things, stood for the principle that if a bonus is an integral part of an employee's total compensation, it would be inappropriate and unfair to the employee to be deprived of the bonus by reason of the unilateral action of the employer.

With respect to language purporting to limit bonus entitlement to only "active employees", the Court of Appeal held that the motion judge had focused too narrowly on whether such language was ambiguous. The claim was not for the bonus, but rather for damages in lieu of a bonus. Accordingly, the Court of Appeal held that the motion judge ought to have pursued a two-step analysis:

  1. What are the employee's common law entitlements, including whether, under the common law, he would be entitled to a bonus during his reasonable notice period; and
  2. If so, whether there is specific wording in the bonus plan that unambiguously alters or removes the employee's common law entitlements.

The Court distinguished its 2004 case, Kieran v. Ingram Micro, holding that (a) Kieran is a stock option case and that stock options, while similar to bonuses, may be subject to a different test; and (b) in any event, the Court in Kieran had applied the correct two part test, determining that the limiting language contained in the impugned stock option plan unambiguously altered the employee's common law rights.

On a separate note, in Paquette, the employee calculated his damages for 17 months of bonus by averaging the bonuses that he had received over the previous four years. The Court approved the averaging formula on the basis that the employer offered no evidence to suggest an alternative calculation.

Lin v. Ontario Teachers' Pension Plan

In 2010, the employer in Lin sought to enforce amendments made to the company's annual bonus plan ("AIP") and long-term incentive plan ("LTIP"). By introducing the new language, the employer sought to bolster its right to deny an employee AIP or LTIP pay upon termination.

When the new language was introduced, the employer asked affected employees to "sign off" on the proposed changes to signify their agreement. Understandably, the employees were not keen to "sign off". As a result, the employer backed away from its request, but took the position that the new language was nevertheless applicable.

Lin was an investment professional who had worked at the OTPP for almost eight years before he was terminated for cause. At trial, the Court held that his employer did not have cause to terminate him and awarded him a notice period of 15 months. His damages award included certain amounts that he would have received and earned under the AIP and LTIP.

The employer appealed, relying on the new language that it had introduced in 2010 to its AIP and LTIP plans, which purported to limit an employee's entitlements on termination. The employer argued that despite refusing to "sign off" on the changes, by continuing his employment, the employee had acquiesced to the amendments and was therefore bound by them.

The appeal was dismissed.

In arriving at its decision, the Court of Appeal agreed with the trial judge that by seeking a "sign-off" to the purported amendments, the employer acknowledged that it could not unilaterally impose a change that was so highly material to an employee's compensation package. By refusing to sign off, the employee made it clear that he rejected the amendments. Accordingly, there was no acquiescence. In any event, applying its reasoning in Paquette, the Court found that a provision that no bonus is payable when the termination occurs prior to the bonus payment date is insufficient to deprive a terminated employee of the bonus he or she would have earned during the period of reasonable notice, as a component of damages for wrongful dismissal.

Key Take-Aways

  1. When considering whether an employee is entitled to his or her bonus over a notice period, make sure that your bonus plan language is carefully considered to determine whether it adequately removes the employee's common law entitlement to a bonus payment on termination.
  2. When drafting your bonus plan language, a simple statement requiring "active employment" or that "no bonus is payable if termination occurs prior to payout of the bonus" is inadequate. The language has to limit entitlement clearly and unambiguously.
  3. Language limiting an employee's entitlement to bonuses should be brought to his or her attention prior to the commencement of his or her employment.
  4. When amending bonus plan language, seek legal advice to ensure the amended plan is enforceable.
  5. If litigating an employee's entitlement to a bonus, submit evidence on the appropriate calculation for the bonus or risk having the Court apply an averaging formula.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.