An executive termination package in Ontario may include more than salary and severance. Depending on the employment agreement and compensation plans, senior employees may also have entitlements involving bonuses, commissions, stock options, Restricted Share Units (RSUs), Performance Share Units (PSUs), pensions, and other benefits.
These additional components can represent a substantial portion of an executive’s earnings. Yet they are not always fully addressed in an employer’s initial termination offer. The important question is not simply how many weeks or months of severance are being offered. It is whether the package properly accounts for the employee’s legal entitlements and the compensation they may have received had the employment relationship continued.
Before accepting an offer or signing a release, executives should understand how their compensation arrangements work and what rights may be affected by the termination.
What Should an Executive Termination Package Include?
Executive employment compensation is often more complex than a regular salary arrangement. Alongside base pay, senior employees may receive short-term performance incentives, deferred compensation, equity awards, retirement contributions, and other benefits. These components can have different vesting dates, eligibility rules, and termination provisions.
| Compensation component | What should be reviewed |
| Base salary | Applicable notice or termination pay entitlements |
| Annual and performance bonuses | Bonuses already earned and potential compensation during the notice period |
| Stock options | Vesting, exercise deadlines, and potential loss of future value |
| Restricted Share Units (RSUs) | Vesting schedules and treatment of awards after termination |
| Performance Share Units (PSUs) | Performance conditions, vesting dates, and applicable plan terms |
| Pension and retirement benefits | Employer contributions and potential losses during the notice period |
| Benefits and allowances | Health coverage, car allowances, insurance, and other compensation |
| Deferred or retention incentives | Payment triggers, forfeiture provisions, and change-of-control terms |
Not every executive is entitled to every component listed above. The starting point is the individual’s employment agreement, incentive plans, compensation history, and the circumstances of the termination. A package based only on base salary may not reflect the full value of an executive’s potential entitlements.
How Is Executive Severance Calculated in Ontario?
There is no single formula that determines every executive severance package. For eligible non-unionized employees, termination entitlements may involve three distinct legal considerations: statutory termination notice or pay, statutory severance pay where applicable, and contractual or common-law rights.
1. Statutory Termination Pay
Ontario’s Employment Standards Act, 2000 (ESA) establishes minimum termination notice requirements for most eligible employees who have worked continuously for at least three months.
Generally, individual termination notice ranges from one to eight weeks, depending on the employee’s length of employment. Special rules can apply, including for mass terminations. An employer may provide working notice, termination pay in lieu of notice, or an appropriate combination. An employee’s senior title does not automatically eliminate the ESA’s applicable termination protections.
2. Statutory Severance Pay
Statutory severance pay is separate from statutory termination pay. Under Ontario’s ESA, an eligible employee may qualify for severance pay if they have at least five years of employment and the employer meets the applicable payroll or business-closure requirements.
One common qualification is that the employer has a global payroll of at least $2.5 million. ESA severance pay is generally calculated using the employee’s regular weekly wages and length of employment, subject to a maximum of 26 weeks.
The distinction between termination pay and severance pay is important because some employees may qualify for both.
3. Common-Law Reasonable Notice
Executives may also have rights under the common law that exceed the ESA minimums. Where an enforceable employment agreement does not validly limit those rights, courts assess reasonable notice based on the individual circumstances.
Relevant considerations generally include:
- Length of service
- Age
- Nature and responsibilities of the position
- Availability of comparable employment, considering the employee’s experience and qualifications
These factors are considered together. No single factor automatically determines the appropriate notice period. For example, a senior executive with specialized responsibilities may face a different employment market than someone working in a more widely available position.
However, a senior job title does not automatically guarantee a particular number of months of severance. A reasonable notice assessment must also account for the compensation and benefits the employee would have received during the applicable period, subject to the governing agreements and legal rules.
Are Executives Entitled to Bonuses After Termination?
An executive may be entitled to bonus compensation after termination, including damages for bonuses they would have earned during the applicable common-law notice period. The outcome depends on the bonus plan, employment contract, timing, and circumstances.
This is different from assuming every dismissed employee automatically receives a full annual bonus. There are two important situations to consider.
Bonuses Earned Before Termination
An employee may have already completed the work or satisfied the conditions required to earn a bonus before their employment ended. In that situation, the issue is whether the amount is already payable under the agreement and applicable wage payment rules.
For example, a bonus tied to a completed financial year may become payable after year-end. The fact that payment is scheduled for a later date does not, by itself, settle whether the employee is entitled to receive it. The relevant plan terms and when the bonus was legally earned must be reviewed.
Bonuses That Would Have Been Earned During the Notice Period
A separate question arises when an executive is terminated before a bonus would otherwise have been paid. In Matthews v. Ocean Nutrition Canada Ltd. (2020 SCC 26), the Supreme Court of Canada confirmed an important approach to assessing damages for lost incentive compensation.
Courts consider two questions:
- Would the employee have received the bonus or benefit during the reasonable notice period if employment had continued?
- If so, does the employment agreement or incentive plan clearly and unambiguously limit or remove the employee’s common-law right to damages for that loss?
The decision illustrates why wording requiring an employee to be “actively employed” does not necessarily settle the issue. However, an enforceable plan provision may limit an employee’s entitlement in other circumstances.
Does an Executive Automatically Receive a Prorated Bonus?
No. A prorated bonus may be relevant to a negotiated package or the calculation of damages, but it is not automatically required in every termination.
An appropriate assessment considers whether the bonus was discretionary, performance-based, already earned, contractually payable, or potentially recoverable as part of wrongful dismissal damages.
For executives whose annual bonuses make up a significant portion of total compensation, this review can materially affect the value of a termination package.
What Happens to RSUs, PSUs, and Stock Options After Termination?
Equity compensation requires particular attention because an executive may hold valuable awards that have not yet vested or become exercisable.
The first step is understanding the type of award.
| Award | How it generally works | Key termination concern |
| Stock options | Provide a right to purchase shares at a specified exercise price, subject to plan terms | Vesting and the deadline to exercise |
| RSUs | Generally provide a right to receive shares or a cash equivalent when vesting conditions are satisfied | Whether unvested awards are forfeited or compensable |
| PSUs | Generally depend on performance targets and other plan conditions | Whether targets, vesting, and payment conditions are satisfied |
These arrangements vary significantly. Some awards are settled in shares, others in cash, and others may be subject to additional restrictions.
Can Unvested Equity Be Included in Wrongful Dismissal Damages?
Potentially. In O’Reilly v. IMAX Corporation (2019 ONCA 991), the Ontario Court of Appeal addressed the treatment of stock options and RSUs following an executive’s wrongful dismissal.
The Court upheld an award of damages for the loss of equity rights that would have vested during the applicable reasonable notice period because the relevant plan language did not sufficiently exclude those rights.
This does not mean every terminated executive can claim all unvested equity. The result depends on the compensation plan, enforceability of the applicable restrictions, expected vesting, and the evidence supporting the claimed loss.
Why Exercise and Vesting Deadlines Matter
A stock option plan may give an executive only a limited period to exercise vested options after employment ends. RSUs and PSUs may operate differently, with separate conditions governing vesting, performance, settlement, and forfeiture.
Executives should identify:
- Which awards have already vested
- Which awards remain unvested
- Upcoming vesting or exercise deadlines
- Any restrictions on selling or transferring shares
- The plan’s treatment of termination without cause
- The effect of a negotiated exit or change of control
The practical concern is timing. A person may have a potential legal claim for lost equity value while still facing immediate deadlines under the plan.
Do not assume that challenging a termination automatically extends an option exercise deadline. Obtain advice about both the plan requirements and any potential claim before those deadlines pass.
Can Executives Claim Lost Benefits, Pensions, and Other Compensation?
Depending on the applicable entitlements, executive termination damages may extend beyond salary, bonuses, and equity. Potentially relevant components include pension contributions, employer-funded benefits, insurance coverage, car allowances, and other contractual compensation.
Ontario’s ESA also requires employers to maintain applicable benefit-plan contributions during the statutory notice period. Common-law damages may involve additional compensation losses during the reasonable notice period, subject to the facts, contracts, and applicable legal rules.
For executives, these smaller components can become meaningful when assessed together. A compensation review should therefore consider the value of the overall package, rather than focusing on salary and one annual bonus.
What Happens if an Executive Is Terminated During a Restructuring or Acquisition?
A restructuring, merger, acquisition, or change in ownership can raise additional questions about executive compensation.
Some employment agreements include change-of-control provisions that provide specific rights if a business is sold or an executive’s employment is affected by a transaction.
These provisions may address:
- Termination payments following a qualifying transaction
- Accelerated vesting of certain equity awards
- Retention or transaction bonuses
- Changes to duties, reporting relationships, or authority
- Conditions that must be satisfied before a payment is triggered
However, a change in ownership does not automatically entitle every executive to a special payout. The contract must be reviewed to determine whether a payment is triggered by the transaction itself, a subsequent termination, or another defined event.
What if an Executive Is Demoted Instead of Terminated?
An executive may also face a significant change in compensation, authority, reporting structure, or responsibilities without receiving a termination letter. Depending on the circumstances, a unilateral change to a fundamental employment term may raise constructive dismissal concerns.
For example, removing substantial decision making authority or significantly reducing compensation can be legally important even when the executive’s title remains unchanged.
However, not every restructuring or role change amounts to constructive dismissal. The contract, significance of the change, and executive’s response all matter. Our guide to constructive dismissal in Ontario explains these situations in more detail. Executives should obtain advice before resigning or agreeing to revised employment terms.
Are Non-Compete Clauses Enforceable for Executives in Ontario?
Ontario generally prohibits employers from entering into non-compete agreements with employees on or after October 25, 2021. However, the ESA includes exceptions, including one for employees holding specified executive offices and another involving qualifying business sales.
The executive exception covers positions such as chief executive officer, president, chief financial officer, chief operating officer, and certain other chief executive roles. That does not mean every non-compete clause involving a senior employee is enforceable.
Even where the ESA prohibition does not apply, common-law principles may affect whether a restrictive covenant can be enforced. Non-solicitation and confidentiality obligations are also distinct from non-compete agreements.
For example, an executive may be subject to contractual restrictions concerning solicitation of customers or employees, or duties concerning confidential business information. Some senior employees may also owe fiduciary duties, depending on their actual responsibilities and relationship with the employer. Before accepting a separation agreement or moving to a competitor, executives should understand which obligations continue after employment ends.
What Should You Review Before Accepting an Executive Severance Package?
A practical executive compensation strategy begins with identifying what is actually being offered and comparing it with the governing agreements and potential legal entitlements.
Before signing, consider the following steps.
1. Gather the Complete Compensation Documents
Relevant records may include the employment agreement, amendments, bonus plans, stock option agreements, RSU and PSU award documents, pension information, and termination letter.
An offer letter alone may not explain every entitlement.
2. Separate Statutory and Potential Common-Law Rights
Identify the applicable ESA minimums, then determine whether the employment agreement validly limits or provides greater termination entitlements.
Avoid assuming the first proposed amount represents the maximum available.
3. Assess the Full Compensation Package
Review base salary, historical and outstanding bonuses, equity awards, benefits, retirement contributions, and other contractual compensation.
Where possible, identify relevant payment, vesting, and exercise dates.
4. Examine the Release and Continuing Obligations
A termination agreement may include a release of claims, confidentiality obligations, non-disparagement provisions, or post-employment restrictions.
The language should be reviewed before it is signed.
5. Consider Timing and Future Employment
Common-law wrongful dismissal damages are generally subject to mitigation principles, which can make reasonable efforts to obtain comparable employment relevant.
The treatment of new employment income may also depend on the structure and wording of any negotiated settlement.
ESA statutory termination and severance entitlements are not generally reduced by ordinary mitigation principles.
It is also worth considering the tax treatment of different compensation components with an appropriate tax adviser, particularly where equity and deferred incentives are involved.
When Should You Speak With an Executive Termination Lawyer?
The best time to speak with an executive termination lawyer is before signing a release, accepting a final severance offer, exercising or forfeiting equity rights, or resigning in response to a major role change.
An executive termination lawyer can assess the employment agreement, applicable legal entitlements, compensation plans, and restrictions that may affect future opportunities.
Rogers & Company’s executive termination and compensation services support senior leaders navigating restructuring, negotiated departures, executive employment compensation disputes, and complex incentive arrangements.
The firm assists with reviewing total compensation, negotiating separation terms, and addressing post-employment restrictions for executives throughout Oakville, Toronto, and the GTA.