Bonus Payout After Resignation in Canada: Are You Entitled?

When an employee resigns, one of the common questions that arise is whether they are entitled to financial rewards after leaving the company. While often seen as a way to recognize performance, the rules around receiving incentive pay after resignation can be complex.

Several factors can influence whether you’re entitled to a payout after resignation, including your employment contract, company policies, and the timing of your departure.

Having clarity around these factors is essential before resigning. Understanding how to approach the situation can help you move forward with confidence and peace of mind, ensuring you have a clear strategy in place for the next steps in your career.

Legal Stance on Bonus Payout After Resignation in Canada

How Canadian Employment Law Treats Financial Compensation

In Canada, payout after resignation depends largely on the terms of the employment contract and any agreements in place. If your employment contract includes specific terms regarding financial rewards, those terms will dictate whether you’re entitled to a payout after resignation. This includes distinctions between different types:

• Discretionary Rewards: These are typically at the employer’s discretion and may not be given after resignation.
• Contractual Rewards: These are guaranteed by the terms of the employment contract and may still be owed to you after resignation, depending on the contract terms.

Key Legal Precedents 

To determine financial reward entitlements after resignation, courts generally assess the nature of the rewards, the terms outlined in employment contracts, and the circumstances surrounding the resignation. Here are some notable cases as examples:

Case 1: Deferred Rewards Entitlement

When the CEO of an oilfield services company resigned, the company refused to pay out half of the incentive pay that had been previously deferred until the company achieved “net income”. The court determined that once an incentive pay is declared, it becomes part of the employee’s “earnings”, as that term is defined in Alberta’s Employment Standards Code, and the employer is obligated to pay it, regardless of the company’s financial status at the time of resignation. 

Case 2: Discretionary Rewards Payment

Five senior executives were dismissed just before their employer declared a discretionary bonus. The court ruled that the executives were still entitled to the payments, highlighting two main factors:

• Regular Practice: The executives had consistently received similar payments, making it a regular part of their compensation.
• Employer’s Actions: The timing of their dismissal, which coincided with the bonus declaration, suggested an attempt by the employer to avoid paying the extra amount.

The court made it clear that employers can’t withhold additional compensation that have been regularly paid, even if they are considered discretionary. This case shows that both the regularity of compensation and the employer’s timing in dismissing employees can impact whether a payout is owed after resignation.

Factors Influencing Bonus Entitlement

When it comes to compensation after resignation, several factors can determine whether you’re still entitled to receive a payout. Here’s a breakdown of key elements to consider:

Type of Rewards Structure

• Performance-Based: These are typically tied to meeting specific goals or performance metrics during your employment. If you resign before achieving these targets, you may not be entitled to the payment, especially if it was clearly outlined as dependent on ongoing employment.
  
• Guaranteed: These are typically promised upfront in your employment agreement, regardless of performance. If your contract guarantees a financial reward, even if you resign before it’s paid, you may still be entitled to it.
  
• Annual vs. Short-Term: Annual rewards are usually tied to company-wide performance and paid at the end of the year, while short-term payments may be awarded more frequently. The timing of your resignation can affect eligibility for both types, depending on the terms of your agreement.

Employment Contract and Agreement Terms

Some contracts may include specific clauses that limit or exclude financial rewards if you resign before a certain date. It’s important to review the fine print of your agreement to understand your rights in this situation.

If an employer tries to avoid paying something that’s guaranteed in your contract, or if they delay payment without a valid reason, they may be acting in bad faith. In such cases, legal action could be taken to enforce the payout.

Timing of Resignation

• Before the Payment Date: If you resign before the date your bonus is paid, you may lose your right to it, especially if it is tied to ongoing employment or performance during the year. However, in some cases, if you’ve earned the rewards or met certain performance targets before resigning, you might still be entitled to it.
  
• Notice Periods: If your contract requires a certain notice period (e.g., two weeks or a month), your eligibility for a payout may depend on whether you work through the notice period. In some cases, employers may owe you the additional compensation if you’ve completed most of the year or met the criteria before resigning, even if you didn’t work your full notice period.

How to Secure Your Compensation Before Resigning

If you’re planning to resign and want to ensure you’re entitled to your financial rewards, it’s important to take the right steps before making your move. Here’s how you can secure your compensation before resigning:

Reviewing Your Employment Contract 

• Key Terms to Look For: Check for clauses that outline how financial rewards are earned, when they are paid, and whether you need to be employed at the time of payment. These details will directly affect whether you’re entitled to your compensation after resignation.
  
• When to Seek Legal Advice: If anything in your contract is unclear, it’s a good idea to consult with a legal expert. They can help you make sense of how the laws and your contract apply to your situation, giving you a clear strategy for moving forward.

Negotiating a Payout Before Resignation

If you’ve earned a bonus, but it hasn’t been paid yet, it’s worth discussing this with your employer before resigning. Have a clear conversation with your employer about your compensation and get details on when you can expect to receive it. It’s helpful to get everything in writing, especially if you’ve met performance targets.

If you’re also negotiating severance, bring up your financial reward as part of the conversation. By combining these discussions, you can work out a plan that ensures you leave with the full compensation you’ve earned.

Legal Remedies If an Employer Refuses to Pay 

If your employer refuses to pay the compensation you’re entitled to, there are steps you can take to recover it.

• Start by reaching out to your employer for clarification on why the payment is being withheld. If needed, send a formal letter stating why you believe you are entitled to the payment.
• An employment lawyer can guide you through your options, whether it’s negotiating with your employer or taking further legal steps. They can help you build a strategy to help you get the full compensation you’ve earned.

Benefits of Legal Support

If you’re thinking about resigning and are unsure about your financial compensation, getting legal support can offer several key benefits:

Clarity

• Understanding Your Situation: Before making the decision to resign, it’s important to have a clear understanding of whether you’re entitled to your financial rewards. Legal support can help you make sense of your employment contract, ensuring you know exactly what you’re entitled to.
  
• Avoiding Surprises: Legal advice ensures you understand the financial implications of your resignation, so you’re fully prepared for your final paycheck.

Peace of Mind

• Reducing Uncertainty: Resigning can be a big decision, and knowing where you stand financially before resigning can ease stress and help you plan your next steps with confidence.
  
• Preventing Disputes: With professional advice, you can avoid future disputes with your employer. If you’re properly informed and have everything in writing, it’s much easier to avoid conflict down the line.

Strategy

• Negotiating Effectively: A lawyer can help you prepare a strategy to negotiate for your compensation before you resign, making sure you don’t leave money on the table.
  
• Taking Action If Necessary: If your employer refuses to pay what you’ve earned, an employment lawyer can help you take legal action to recover what you’re owed, giving you a clear path forward.

Why You Should Consult an Employment Lawyer

• A lawyer can thoroughly review your employment contract and agreement before you resign to ensure you fully understand your entitlements.
• An employment lawyer will ensure you receive fair compensation for your work, including any additional pay you’re entitled to, even after resigning.
• If your employer refuses to pay your bonus after you resign, an employment lawyer can represent you and take the necessary steps to recover the money you’re owed.

Get the Support You Need

Leaving your job and unsure if you’re entitled to financial rewards after resignation in Canada?

Contact us to book a consultation and get expert legal advice to protect your earnings.

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