The Vanishing Earned Bonus [Part I] – And How to Get it Back!
Every year, around this time we start to get calls from employees who have not only lost their jobs but have also been denied their year-end bonus, which so many families depend on in budgeting their lives. Employers use all kinds of tricks to withhold what employees rightly feel they have earned such as calling the bonuses “discretionary,” saying the employees must be employed on the date bonuses are paid, or that unless the employees worked the entire year they are not entitled to their bonuses. While many of these issues are dictated by the terms of an employee’s bonus agreement, Illinois courts have put some limits on an employer’s ability to deny an earned bonus.
- Discretionary Language
While many employment agreements state that bonuses are discretionary and entirely at the will of the employer, Illinois courts have held that that discretionary language will not always be enforced. For instance, where an employer has paid all other employees under a bonus agreement, the employer cannot rely on the discretionary language as an excuse to deny just one employee his or her bonus. Therefore, if an employer withholds the bonus of just one laid off employee, but pays all others, that employee may have good reason to demand payment.
Similarly, where a bonus agreement allows the employer discretion solely in deciding whether an employee can be a part of a bonus program in the first place, it does not give the employer discretion to withhold a bonus to an employee already participating in that bonus program. Thus, the mere inclusion of discretionary language in a bonus contract will not automatically give an employer the right to withhold an employee’s bonus. The court will look beyond the specific discretionary terms to the rest of the agreement, as well as to the practice of the employer. It is important to carefully review the terms of a bonus agreement to determine whether or not the discretionary language of that agreement will be enforced.
- Employment on the Date Bonuses are Paid
Generally, courts have held that employees need not have worked an entire continuous year or be employed on the date bonuses are paid to receive a bonus they are entitled to under contract. This may be true even where the terms of the bonus plan explicitly require year-long employment or employment on the date of bonus payments.
For instance, where a bonus agreement explicitly requires year long employment, but the employment is terminated by mutual consent of employee and employer or by the act of the employer through no fault of the employee, the employee will be entitled to a proportionate share of the earned bonus. Significantly, whether an employee is at-will is irrelevant to this issue.
Some courts have even held that an employee is entitled to a proportionate share of the earned bonus, despite not satisfying year-long or date of payment requirements, where that employee voluntarily resigned. Courts have explained that withholding a resigned employee’s bonus unfairly allows the employer to keep all the benefits of its bonus plan, namely the added effort an employee puts forth to ensure his or her bonus, without sharing those benefits with the employee.
- How Much Must an Employer Pay
First, where the terms of the bonus plan are discretionary, although an employer may have to pay some amount of bonus, generally the employer is entitled to determine how much that payment should be. Thus, under a discretionary bonus plan an employee is often not entitled to challenge the quantity of the bonus awarded.
That said, where the bonus agreement does not provide for discretionary awards and an employee leaves prior to completing a full year, courts have held that the employer must pay a pro rata share of the bonus which would have been awarded according to the agreement. Bonuses provided for under a bonus or employment agreement are considered “earned wages” under the Illinois Wage Payment & Collection Act; thus, they must be paid upon termination. Therefore, regardless of the terms of a bonus agreement, where an employee has worked a portion of the year prior to being terminated, that employee is entitled to a proportionate share of the bonus which would have been awarded had he or she remained employed.
For instance, if according to a valid bonus agreement an employee’s year-end bonus would have been $10,000 and that employee is terminated after working six months, the employee is entitled to $5,000. Unfortunately, whether an employee is entitled to a pro rata share after voluntarily resigning is not as clear cut. Some courts say they are and others disagree.
Conclusion
It is important to note that all of this depends upon the existence, in the first place, of a valid contract making the employee eligible for a bonus. That contract may be oral or written, it may come in the form of an offer letter, an employee handbook, a bonus agreement or an employment agreement, but unfortunately, absent such a contract it is difficult to enforce payment of withheld bonuses.
If you have questions about the validity of your bonus agreement or whether your employer was unjustified in withholding your yearly bonus, please call our offices and we can discuss the specifics of your situation.
I’m planning to leave my company soon, and I would like to resolve the bonus issue upon my exit. I am entitled up to 20percent dependent on performance. Last year I had a lower rating than this year, and I recieved the full bonus. This year I also received an outstanding rating, which only a handful receive, and with over 100 percent assigned to several objectives. We receive the bonus mid April but I am close to getting an offer now and I don’t want to loose the opportunity. What are my chances of receiving the bonus?
Hi Kristy, thanks for your inquiry. Unfortunately, we cannot assess the likelihood of your receiving the bonus without a more detailed conversation and, likely, a review of the relevant bonus plan and other documents. If you’d be interested in setting up some time for a consultation, please give us a call at 312-920-0400 and we can walk you through the process. We look forward to hearing from you.
Part of my contract with my company is as head of my department I will recreive a monthly Bonus only if we make budget in that month. I went on 6 weeks leave of absent and My department made its monthly budget but I did not receive a bonus because I was on leave. Can they do that?
Hi Mimi, we would need additional information regarding your situation to determine whether you have a legal right to the unpaid bonus. Feel free to give us a call at 312-920-0400 if you would like to set up some time to discuss the matter further. We look forward to hearing from you!
I have been receiving a bonus whenever I make the monthly plan for the past 2 years and now the company is trying to say that they are not going to pay my last two bonuses because I no longer qualify for the bonus. What can I do?
Hi Rayvonda, I’m sorry to hear that you’re being denied your bonus. That compensation is something that most people come to expect and rely on and having it yanked out from under you without warning can be awful. That said, it’s hard to know whether the company has a right to deny your recent bonuses without seeing your bonus agreements or policies and talking more specifically about how the bonuses are earned and calculated and what, specifically you have been told. I’d be happy to speak further with you about your rights and options. Please give our office a call at 312-920-0400 if you’d like to set up some time for a consultation.