Ontario, Canada Court Upholds Verbal Bonus Policy and Denies Former Employee's Bonus Claim

In Smith v. Evertz Microsystems Ltd., 2026 ONSC 2166, the Ontario Superior Court dismissed a former employee's claim for an annual bonus after finding that a longstanding verbal bonus policy required employees to be actively employed at the time the bonus was paid. 

The decision is a useful reminder for employers that bonus entitlement depends not only on whether an employee worked during the relevant performance period, but also on the terms governing eligibility for payment. It is also a rare example of an employer successfully relying on a verbal policy to deny a bonus entitlement. 

Background

Roderick Smith worked for Evertz Microsystems Ltd. for more than 16 years. Throughout his employment, he received annual bonuses that formed a significant part of his overall compensation, in some years exceeding 50 percent of his remuneration. 

After completing the employer's 2020 to 2021 fiscal year, Mr. Smith resigned before bonuses were calculated and distributed. Evertz declined to pay him a bonus for that fiscal year, relying on what it described as a longstanding verbal policy requiring employees to be actively employed at the time of payout. 

Mr. Smith argued that he had earned the bonus by working the entire fiscal year and that no written policy imposed an active employment requirement. The employer maintained that bonus eligibility had always been subject to two conditions: employees had to be employed when bonuses were paid, and all bonus awards were discretionary and determined by the Chairman and Executive Vice President of the company (the “Chairman”). 

The Court's Decision

The Court found that the bonus program was highly discretionary. There was no written formula, objective metric, or calculation method that would allow the Court to determine what bonus, if any, should have been awarded. Instead, bonuses were based solely on the Chairman’s assessment of an employee’s bonus entitlement after the fiscal year ended. 

The Court also concluded that Mr. Smith was aware of the active employment requirement. In reaching that conclusion, the Court relied in part on evidence that, after resigning, Mr. Smith inquired whether he would receive a bonus and sought what was described as an "exception" to the policy. The Court found that this conduct supported the employer's position that he understood the limitation on bonus eligibility. 

As a result, the Court held that the employee had accepted the policy during his employment and was not entitled to the bonus after resigning. The claim was dismissed. 

Practical Takeaways for Employers

While the employer was successful, the case highlights several important lessons that organizations with bonus and incentive compensation programs may wish to consider:

• Put bonus plans and eligibility requirements in writing. The employer succeeded despite the absence of written documentation, but only after a detailed factual dispute and credibility assessment. 
• Communicate bonus terms consistently and ensure managers understand and apply them uniformly. The Court placed significant weight on its finding that the employee knew of the policy and continued his employment without objection. 
• The fact that a bonus is discretionary does not provide an employer with unfettered discretion to not award it. Discretion must be exercised fairly and reasonably. In this case, the Court found there was no evidence that the policy was applied in an arbitrary or discriminatory manner.
• Review employment agreements and incentive compensation plans regularly to ensure they contain clear, consistent language addressing eligibility, discretion, active employment requirements, and post-employment entitlements.      

The decision demonstrates that Ontario courts may enforce unwritten bonus limitations where the employer can establish that the employee knew of and accepted them. However, employers should not view Smith as a substitute for clear contractual language. Careful drafting remains the best protection against costly disputes over bonus entitlement and doing so will not only mitigate an employer’s exposure to alleged unpaid wage claims but also the value of damages for wrongful dismissal.