Bonuses for terminated employees – Common Misconceptions
Generally, employees are entitled to damages for loss of a bonus as part of damages for wrongful dismissal. However, employers tend to argue the opposite as a money-saving tactic. Employers may seek to rely on their bonus plans, employment contracts, their own discretion, and anything else that sounds even halfway plausible.
Often, these arguments directly contradict or ignore the law. “Your employer might even know that their arguments will not stand up to a brisk wind. But employees who know their rights will not be intimidated by these paper tigers,” explains Nick Goldhawk, Toronto Employment lawyer at Share Lawyers. Here are some of the most common arguments employers will try to make to deprive dismissed employees of bonuses across Canada:
Misconception 1:Bonuses are discretionary
Employers often argue that all bonuses are discretionary. Therefore, when your employer terminates you, they may exercise that discretion in the negative.
While superficially persuasive, this argument holds no water legally. Employers must exercise this type of discretion in a fair and reasonable manner. It is neither fair nor reasonable for your employer to withhold your bonus on account of their own decision to terminate you without cause.
Misconception 2:Bonuses are not guaranteed
In fact, bonuses are rarely guaranteed, which is what typically differentiates them from salary. Whether or not a bonus is “guaranteed” is a red herring as far as a dismissed employee is concerned; the court will award damages for a lost bonus where the bonus was a consistent and integral component of the compensation. If your employment contract refers to a bonus, your bonus likely meets this threshold.
Misconception 3: Bonuses are based on performance
Again, most bonuses are based on performance. Of course, when your employer terminates your employment, you are deprived of the ability to perform your job functions – let alone perform them well. If you have been dismissed without cause, your claim is technically not for the bonus itself but for the damages resulting from the loss of employment, which can include the loss of a bonus. It can be helpful to frame the question like this: what payments and benefits would I have received if I had been given reasonable advance notice of my termination?
Misconception 5: Bonuses are for “actively employed” employees only
Once again, your claim is not for the bonus itself, but for the damages resulting from the loss of employment, including lost bonuses. If you have been wrongfully dismissed, that means your employer decided for you to no longer be “actively employed” without giving you the proper notice. Courts will not often allow employers to profit off their own unlawful actions.
Misconception 6: Bonuses are only paid once a year/no entitlement until paid
Employers will often claim that bonuses are paid out only once a year, and if your employment or notice period ends before the payout date, you are not entitled to any bonus. The Ontario Court of Appeal recently clarified this issue, in a win for employees. To repeat – your claim is not for the bonus itself, but for the damages resulting from the loss of employment. A court may find that even though your notice period only extends part-way through a bonus year, you are nevertheless entitled to a proportional share of your bonus that has been or would have been earned.
For example, assume an employee is entitled to a $20,000 bonus on December 31 of each year. Assume if the employee is terminated, he is entitled to 7 months of notice (or pay in lieu). If the employee is terminated on November 30, 2022, he will presumptively be entitled to the full $20,000 for 2022, plus 6 months’ worth of bonus ($10,000) for 2023.
Now that you know some common bonus misconceptions that employers use to take advantage of recently terminated employees, you can better protect yourself. We hope you never have to use this new knowledge but are prepared to fight for what you deserve. Don’t forget that the Toronto employment lawyers at Share Lawyers are in your corner and we can help. Share is There.
If you have been terminated, laid-off, or severed from your employment contact anywhere in Canada, our experienced team of employment law lawyers in Toronto can help. We offer free consultations and there are no fees unless we win your case. Find out if you have an Employment Case.