Can an Employer Withhold or Reduce a Bonus After Termination?

Usually no, unless the contract clearly says so

Usually no. An employer cannot simply withhold or reduce a bonus after terminating an employee without cause, unless the employment contract or bonus plan clearly and unambiguously says the bonus does not apply once employment ends. This comes from a two-part test the Supreme Court of Canada set out in Matthews v Ocean Nutrition Canada Ltd, 2020 SCC 26, which applies across Canada, including in Ontario and Alberta.

The test asks:

1. Would the employee, but for the termination, have been entitled to the bonus during the reasonable notice period (the length of time the law says the employer must have given notice, or paid in lieu of it)?
2. Does the contract unambiguously remove that entitlement?

If the answer to the first question is yes and the answer to the second is no, the bonus (or a pro-rated share of it) is owed as part of the employee’s wrongful dismissal damages, separate from any severance already paid. Alberta courts apply the same test directly, as confirmed in Lischuk v K-Jay Electric Ltd, 2025 ABKB 460.

Why “active employment” and “good standing” clauses often don’t work

Many bonus plans say an employee must be “actively employed” on the payout date to receive the bonus. On its own, this kind of clause is not enough to defeat a terminated employee’s claim to bonus damages. The Ontario Court of Appeal held in Paquette v TeraGo Networks Inc, 2016 ONCA 618, that such wording does not deprive an employee terminated without reasonable notice of a claim for compensation for the bonus they would otherwise have earned.

To actually cut off the right, the contract language has to do more than restate the payout condition. In Andros v Colliers Macaulay Nicolls Inc, 2019 ONCA 679, the Ontario Court of Appeal confirmed that a clause excluding bonus damages during the notice period must be clear on its face; vague “good standing” language will not suffice. And in Dawe v The Equitable Life Insurance Company of Canada, 2019 ONCA 512, the court added a further condition: the restrictive terms must have actually been brought to the employee’s attention and formed part of their contract, not just buried in a plan document the employee never saw.

Statutory minimum pay is not the same as bonus damages

It matters whether you’re looking at the minimum the law requires on termination, or the fuller amount a court can award for wrongful dismissal. These are calculated differently, and the difference is where bonus disputes usually arise.

In both provinces, the statutory minimum is a floor, not the full picture. A bonus excluded from the statutory “wages” calculation can still be recoverable as common-law damages if it meets the Matthews test.

What you can do next

If a bonus was withheld or reduced after termination, the practical options are:

• Review the exact wording of the bonus plan and employment contract to see whether it meets the “clear and unambiguous” standard described above, and whether it was actually provided to you at the time it mattered.
• Compare what you received against the statutory minimum (Ontario’s ESA termination pay, or Alberta’s Employment Standards Code entitlements) to see whether it covers only the statutory floor and not any additional bonus damages.
• Raise a wrongful dismissal claim if the bonus formed part of your compensation and the contract does not clearly exclude it during the notice period; this is a civil claim, not a government complaint process, so it typically involves a demand letter or court action rather than a regulator.
• Keep records of past bonus payments, since historical entitlement is part of showing the bonus was integral to your compensation.

None of this converts a “for cause” termination (dismissal for serious misconduct) into a no-cause one; the analysis above concerns terminations without cause, where the bonus question turns on contract wording and the Matthews test rather than the reason for dismissal.