Executive Summary

‘Discretionary’ bonuses may not be so discretionary on termination.

A bonus is payable, discretionary or not, to a departing employee during the employee’s notice/severance period. This is so unless there is clear and unequivocal language in the employee’s contract stating otherwise. The Supreme Court of Canada made that clear in the case of David Matthews and Ocean Nutrition Canada. More recently, the Ontario Court of Appeal chimed in on the issue reiterating the decision in Matthews. The takeaway from these cases is that employers should not rely on the term “discretionary bonus” in an attempt to shortchange departing employees of a bonus they would otherwise be owed. Rather, these types of bonuses must be exercised in a “fair and reasonable manner.” Depriving an employee of a bonus that is commensurate to her/his colleagues, or that has been consistently paid out in the past with no different factors other than the employee’s termination may not be fair and reasonable in the eyes of the court.

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