Canadian Bonus Claims: Unwritten Policy Might Defeat Claims

For many years, Canadian courts have scrutinized bonus plans closely when employees seek compensation following the end of their employment. Employers have often been unsuccessful in relying on ambiguous or poorly drafted bonus language to deny payments that employees claim they would otherwise have received during the reasonable notice period.

The Ontario Superior Court of Justice's recent decision in Smith v. Evertz Microsystems Ltd., 2026 ONSC 2166 demonstrates, however, that under the right circumstances even an unwritten verbal policy may be sufficient to defeat a bonus claim. The decision is an unusual but important reminder that bonus entitlements are determined not only by written contracts, but also by the terms governing the bonus program and whether those terms have been effectively communicated and accepted by employees.

The employee in Smith had worked for Evertz Microsystems for more than 16 years and regularly received substantial annual bonuses. In some years the bonus was more than 50 per cent of the employee’s compensation. After completing the company's fiscal year, he resigned before bonuses were calculated and paid. When the employer refused to pay, he sued, arguing that because he had worked throughout the entire performance period, he had earned the bonus and should receive payment notwithstanding his resignation.

The employer disagreed. It maintained that it had always operated under two longstanding verbal rules. First, employees had to be actively employed on the date bonuses were paid. Second, all bonuses remained entirely discretionary and were determined by senior management after the fiscal year had ended. Although neither requirement was contained in a written bonus plan, the employer argued that both had consistently been communicated and understood within the organization.

The Court accepted the employer's position. Justice Myers found there was no objective formula or contractual entitlement that would allow the Court to determine what bonus, if any, the employee had earned. Instead, the evidence established that bonus awards were discretionary and only determined after the fiscal year concluded.

More significantly, the Court concluded that the employee knew of the active-employment requirement. In fact, after resigning he had asked management to make an "exception" so that he could receive a bonus, a request that the Court viewed as strong evidence that he understood the policy existed, and was indeed bound by this rule. Having accepted that policy during his employment, the employee could not later argue that it was unenforceable. His bonus claim was therefore dismissed.

The decision is noteworthy because it departs from the more common scenario in which employers rely upon carefully drafted written bonus plans. Instead, Smith confirms that an unwritten policy may be enforceable where an employer can establish, through credible evidence, that the policy was longstanding, consistently applied, clearly communicated and accepted by employees.

Employers should nevertheless resist viewing Smith as an invitation to abandon written bonus plans. The employer's success depended upon specific factual findings concerning employee knowledge and credibility following a contested trial. Many employers would struggle to prove those same facts, particularly where managers communicate bonus expectations inconsistently or where employees deny ever being informed of the policy. Especially given the potential challenges with marshalling evidence, a clear written bonus plan remains the most effective way to reduce litigation risk and avoid disputes over what was or was not said.

Takeaways for Employers

For employers, the practical lessons are twofold. First, active-employment requirements continue to be an effective means of limiting bonus entitlement when they are properly established. Second, while Smith demonstrates that such requirements need not always be written, relying on verbal policies is inherently risky. Employers should continue documenting bonus eligibility criteria in employment agreements or bonus plans, regularly communicating those requirements to employees, and applying them consistently. Doing so will provide significantly stronger protection than being forced to rely on witness recollections years after the fact.