Bonus Agreement Template (Canada)
Updated on August 15, 2026
A bonus agreement sets out what an employee has to do to earn a bonus, how it's calculated, and when it's paid. The Supreme Court of Canada's 2020 decision in Matthews v. Ocean Nutrition Canada Ltd. reshaped how these agreements have to be written: reasonable notice is an implied term of every employment contract, so an employee's contract stays alive for damages purposes throughout their notice period, even after termination.
The Court set a two-part test: first, would the employee have been entitled to the bonus during the notice period but for the termination; second, does the bonus plan's own wording clearly and unambiguously remove that common-law entitlement. Vague language ('must be actively employed on the payment date') is not enough on its own — the plan has to be explicit about what happens on termination without cause. This template is written with that bar in mind.
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Bonus Agreement
- Date:
- Employer:
- Employee:
This bonus is a vested right of the employee: once the conditions of this agreement are met, it becomes payable.
1. Targets and calculation
For the period , the bonus is calculated as follows: The maximum amount is .
2. Payment
Any bonus payable will be paid on along with regular pay.
3. Termination and notice period
If the employee's employment is terminated without cause, the bonus will remain payable if the triggering event occurs within months of termination, corresponding to the employee's period of reasonable notice, unless applicable law or a court determines a longer period applies.
4. General
This agreement is governed by the laws of Canada and the applicable province, and by any applicable collective agreement.
For the employer
Date:
Employee
Date:
The employment contract stays alive through the notice period
Reasonable notice is an implied term of every employment contract, so for damages purposes the contract is treated as continuing through the notice period even where employment has actually ended — a bonus that would have vested during that period is presumptively owed.
Vague termination language isn't enough to remove the entitlement
To oust an employee's common-law right to a bonus vesting during the notice period, the plan has to use language that unambiguously alters or removes that right — a generic 'active employment' requirement was found insufficient in Matthews.
What each part of the agreement does
- Bonus type
- Whether the bonus is discretionary or a right that vests on stated conditions.
- Targets and calculation
- Period, targets and calculation formula.
- Termination and notice period
- States explicitly, per Matthews, whether the bonus vests during the notice period.
Legal considerations in Canada
Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26, governs whether a bonus is owed through the notice period after termination.
Use unambiguous termination language, not a vague active-employment clause
The plan must clearly and unambiguously alter or remove the employee's common-law entitlement to a bonus vesting during the notice period — courts have found generic 'must be actively employed' wording insufficient.
MLT Aikins — Supreme Court Clarifies Analysis for Bonus Payments During Reasonable Notice PeriodApply the two-part test before assuming a bonus isn't owed
First ask whether the employee would have earned the bonus during the notice period but for termination; then check whether the plan's wording clearly removes that entitlement.
How to complete the bonus agreement
- Choose the bonus type. Discretionary, or a right that vests on stated conditions.
- State the period and targets. Calculation formula and maximum amount.
- Set explicit termination wording. State clearly whether the bonus vests during any notice period, per Matthews v. Ocean Nutrition.
Frequently asked questions
Can the employer just cancel a discretionary bonus after terminating me?
Not automatically — under Matthews v. Ocean Nutrition, a bonus that would have vested during your notice period is presumptively owed unless the plan's wording clearly and unambiguously says otherwise.
Does saying I had to be 'actively employed' to receive the bonus remove my right to it?
Not on its own — the Supreme Court found that kind of generic language insufficient to remove the common-law entitlement; the plan needs to be explicit about termination without cause.
Is the bonus taxed the same as salary?
Yes — a bonus paid to an employee is treated as employment income.
Can I lose the bonus if I leave before the payment date?
It depends on the plan's wording and whether the triggering event falls within your notice period — this is exactly the question Matthews v. Ocean Nutrition addresses.
Does a collective agreement automatically apply to my bonus?
Only if your position is covered by an applicable collective agreement — check before setting the bonus structure.
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Disclaimer
This template and guide are for general information only and are not legal or tax advice.
