Many employers offer profit-sharing or other incentives to encourage their employees to do good work and reward them when the company does well.  This kind of bonus can form an important part of the employee’s total pay.  When the employment is terminated and the employer makes a severance offer, the employee is often surprised to see the words “base salary only” on their termination papers.  What is the employee actually entitled to have?

Bonuses under contract

If there is a written employment contract, it may say something about what happens to the bonus on termination of the employment (in our experience, most contracts do not).  The contract may just say, “You will be eligible to participate in our incentive plan,” and give some details about how that’s measured and paid out.  This wording does not limit the employee's entitlement to bonus during the notice period.  When we meet with dismissed employees the first thing we usually do is review the employment contract and ask questions about how it came into being.  This helps us to advise on the terms and enforceability of the contract – and whether bonus factors into what the employee is entitled to have on termination.

Bonuses under common law

Where the contract does not limit entitlement to bonuses during the notice period, the common law fills in the gaps by implying terms into the employment.  To lawfully dismiss, at common law the employer is supposed to give working notice.  They should let the employee keep working until the end of the notice period, whatever that might be.  However, most employers now terminate “effective immediately” and give pay in lieu of working notice.  British Columbia law treats the employee as being still employed during that notice period, even though the employer has stopped them from working.  This means the employee is entitled to be paid all elements of their pay for the duration of the reasonable working notice that their employer ought to have given them.

The common law uses a few basic rules to determine whether a bonus ought to factor into “pay in lieu of notice” (the legal term for “severance pay”).  We’ll discuss these in Part 2.

Just because your employment contract seems to limit entitlement to bonus after termination, does not mean you’re not entitled to it.  It is always a good idea to have an employment lawyer review your employment contract and severance offer before you sign a Release.  The rules are complicated, but they’re often in your favour.