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Is a terminated employee entitled to bonus during the notice period?

Employees that have been terminated from their employment are entitled to all forms of compensation during the reasonable notice period. All forms of compensation include base salary, commissions, incentive compensation, pension contributions, extended health and dental coverage, and any other forms of consideration provided by the employer in the ordinary course of employment.

Some bonus plans and/or employment contracts contain provisions, which attempts to limit bonus entitlements to those workers actively employed with the company. A terminated employee would not be considered “actively employed;” accordingly, under the bonus plan provisions, employers were often not provisioning for bonuses or incentive compensation in severance packages.

In the case of Pacquette v. TeraGO Networks, the Ontario Court of Appeal clarified the law around bonus entitlements during the reasonable notice period. In sum, the language of the bonus plan will be crucial in determining whether the employees’ entitlements to such bonus have ousted during the severance period. The common law presumption is that an employee is entitled to reasonable notice of termination or payment in lieu thereof, and such payment is to include all forms of compensation, including incentive compensation. A clear and unambiguous bonus policy may oust such obligation on the employer.

In order to limit one’s bonus entitlement during the reasonable notice period, an employer should direct the employees’ attention to such clause, or else it may not be held enforceable, especially if the bonus payments are determined to be an integral component of compensation.

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