Do you have to pay a bonus following the termination of employment?

‘Discretionary’ bonus can be unwelcome surprise in litigation
By Shana French and Brian Wasyliw
|Canadian HR Reporter|Last Updated: 02/21/2017

This is the time of year when many companies determine bonus payments for the preceding year and set targets or review language for the upcoming year. A bonus is commonly intended as a performance tool to reward and incentivize an employee who has or is expected to contribute to the success of the organization and/or achieve performance objectives.

As a tool to reward and motivate, an employer may seek to tie bonus entitlement to active employment status. Unfortunately, in many cases, employers have been unsuccessful in  precluding a bonus claim from a former employee. Whether the exposure is in respect of a pro-rata claim by an employee who has left before the end of the relevant bonus period, or a claim for lost bonus opportunity during the period of applicable notice, many employers are surprised to discover there is serious risk of a significant payment to a former employee in respect of these bonus claims.

A common mistake an employer may make is failing to have a written bonus plan at all, or using an outdated or “dusty” written plan or policy an employee may, or may not, have seen.