Christmas Presents and Bonuses for Your Employees: Can the Employer Be Less Generous Than Santa?

Everyone is waiting impatiently: nobody is talking about it, but everybody is thinking about it – what will this year’s Christmas gift from their employer be?

Whether it’s a holiday-season gift or bonus, employee expectations may be high. But what would the consequences be if, one year, you decided not to give any? Has your past generosity become an obligation?

1. Bonuses 

a. Types of bonuses

A bonus is an amount paid to an employee over and above his or her regular salary and can take various forms.

First of all, an employer may offer, year after year, an automatic bonus of a fixed amount that is not subject to the performance of the employee or of the employer’s business.

A bonus can also be paid on a purely discretionary basis, as the employer sees fit.

Finally, the parameters for payment of the bonus may be predetermined according to criteria established by the employer, with or without the participation of the employees. Employees are however aware of the criteria, which are usually related to the operating results of the business or to the employee’s individual performance.

b. Legal framework

There is no specific legislation on bonuses although, depending on the circumstances, they may be considered part of an employee’s overall remuneration. They are instead governed by contractual framework. Their amounts, criteria and periodicity of payment may constitute employment conditions in an individual employment contract or in a collective agreement. A company policy may also establish the bonus framework for all employees or for different categories of employees. Finally, a constant and recurring bonus mechanism known to all employees may also be considered to be a legal framework.

c. Modification or termination of the bonus

An employer may, for a variety of reasons, wish to curtail the distribution of bonuses during the holiday season. Its right to do so is directly depends on the legal framework governing their distribution.

Thus, if the granting of a bonus is provided for in an individual employment contract, it may be deemed an essential condition of the contract, depending of course on the size of the amount. In such cases, the principles pertaining to constructive dismissal may eventually come into play. Thus, before modifying the bonus criteria or doing away with the bonus altogether, the employer should notify the employees concerned. The length of the prior notice period will depend on the circumstances, the characteristics and the number of years of service of the affected employee.

This reasoning may also apply where the bonus is provided for in a company policy. Close examination of the terms of that policy will be necessary however, as often the employer will have already provided therein for the possibility of unilaterally making changes to the bonus. Depending on the amounts involved, this latitude on the part of the employer cannot however go so far as to constitute an abuse of right.

On the other hand, if the payment of and the criteria for the bonus are provided for in a collective agreement, the employer will not be able to make changes thereto unilaterally, unless of course the collective agreement or another agreement with the union gives it that right.

d. Bonuses and termination of employment

Can a dismissed employee claim his or her Christmas bonus?

The answer to this question will depend on the type of bonus involved and on whether or not the dismissal was justified. If it was, the employee cannot claim the bonus given to the other employees following his or her dismissal. On the other hand, in certain circumstances an employee dismissed without cause may be entitled to such a bonus. For example, if the bonus is clearly provided for in the employment contract and its payment is automatic, the dismissed employee can include it in his or her claim for payment in lieu of reasonable prior notice. However, the dismissed employee will normally not be entitled to a bonus if the payment of it was purely discretionary. Similarly, the employee will have no such entitlement where the evidence shows that the bonus payment criteria were not met.

2. Christmas presents

The kinds of gifts employers can give employees during the holiday season, from the traditional Christmas card to a more lavish frozen turkey, are limited only by their imagination.

And whether this generosity on the employer’s part is new or solidly entrenched in company tradition, can the employer randomly decide one year to be less generous?

In a non-unionized context, generally speaking, a Christmas present from an employer is seen as a gesture of gratitude, offered on a discretionary basis, without engendering any obligation on the part of the employer.

Arbitral case law is however divided on the question of whether a Christmas gift constitutes a condition of employment and may be protected by a vested-rights clause in the collective agreement.

By way of illustration, in the matter of Société des alcools du Québec¹, the grievance contesting the employer’s decision to no longer give out Christmas gifts was dismissed. The arbitrator concluded that the employer’s annual Christmas gift, a $50 gift card, could not constitute a vested right, as it had always been characterized as a discretionary bonus.

The arbitrator explained that the Christmas gift at issue constituted a benefit but not a vested right, for the following reasons [TRANSLATION]:

Under the circumstances I cannot conclude that the employer ever acknowledged that the employees had an acquired right to receiving a Christmas gift. In my view the employer each year exercised its discretion to distribute a Christmas gift pursuant to its management rights. It was free to change the amount and nature thereof, and the employees’ eligibility thereto, on an annual basis. It could also elect not to give one at all, as it did in 2004 and again in 2010. One thus cannot characterize it, as the union would have it, as a recognized benefit or privilege. The benefit was in fact limited in time. It arose from a resolution of the management committee and was extinguished upon the distribution of the gift.² (emphasis added)

Conversely, in the matters of Caisse populaire de Verdun³ and Croustilles Yum Yum Inc.⁴, the arbitrators concluded that a Christmas bonus or gift constituted a condition of employment protected by the vested-rights clause in the collective agreement. The wording and scope of such clauses as well as the evidence filed in each given case are determinative in the resolution of such disputes.

For example, in the Caisse populaire de Verdun case, the arbitrator dismissed the grievance contesting the employer’s decision not to pay Christmas bonuses despite being of the view that they constituted a protected condition of employment. That was because the collective agreement allowed any condition of employment to be modified on reasonable grounds, and the arbitrator concluded that the financial difficulties of the cooperative banking institution constituted a reasonable ground⁵.

3. Conclusion

Giving out bonuses or gifts during the holiday season is a generous gesture on the part of an employer and greatly appreciated by employees. Its benefits are far from negligible insofar as human resources management is concerned: it often fosters a sense of belonging among employees and has a bonding effect at this special time of the year. However, close attention must be paid so that such generosity does not become an irrevocable obligation on the part of the employer and remains a token of gratitude rather than a binding duty.