When an Ontario employee is terminated, the conversation about compensation usually starts with the notice period. But for many professionals — particularly those in financial services, technology, or senior management — the real money is in the variable pay: annual bonuses, restricted stock units (RSUs), and stock options. Employers routinely try to cut off these entitlements at the date of termination. Ontario courts have increasingly said that is not the law.

Bonuses earned during the notice period

The principle is straightforward: you are entitled to compensation — including variable pay — throughout the entire common law notice period, not just until your last day of work.

The Ontario Court of Appeal confirmed this in Paquette v TeraGo Networks Inc., holding that a terminated employee was entitled to a bonus that would have been paid during the reasonable notice period, because the bonus was an integral part of his compensation — not a purely discretionary gift.

The key question is whether the bonus is truly discretionary or whether it forms a meaningful and expected part of your total compensation. Courts look at:

• Whether the bonus was paid consistently year over year

• Whether it was tied to defined metrics or performance targets

• Whether it was referenced in the offer letter or employment agreement

• Whether the employer exercised "discretion" in a way that was disconnected from actual performance

If the answer to any of these suggests the bonus was effectively a guaranteed element of pay, you likely have a claim for it during the notice period.

RSUs and stock options: the vesting problem

Most equity award agreements contain provisions that terminate RSU vesting and option exercise rights on the date of termination. Employers rely on these provisions to forfeit unvested equity.

However, Ontario courts have developed a robust body of law holding that termination clauses — including equity forfeiture provisions — can be void if the underlying termination clause fails to comply with the ESA. This principle flows from the Supreme Court of Canada's decision in Waksdale v Swegon North America Inc., which held that if any part of a termination clause is illegal, the entire termination clause is void.

The practical result: if the termination clause in your agreement is unenforceable under Waksdale, the equity forfeiture provision tied to it may be unenforceable too.

"Good leaver" and "bad leaver" provisions

Many equity plans use good leaver/bad leaver language to determine what happens to unvested equity on termination. Being terminated without cause should typically qualify as good leaver treatment — meaning extended vesting or immediate acceleration. Employers sometimes misclassify terminated employees to justify forfeiture. This can be challenged.

What you should do

Before assuming your bonus or equity is gone, get legal advice. The intersection of employment law and equity compensation is technical, but the principles favour employees more than most people realize.

King Law · Employment Lawyers · Oshawa, Ontario 📧 steven@kinglaw.ca | 🌐 kinglaw.ca

This post provides general legal information for Ontario employees. It is not legal advice. Contact us directly for advice specific to your situation.