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Bonuses at Termination

Bonuses at the end of employment is rarely an issue thought about – until the topic of termination is brought up.

Whether an employee resigns or is dismissed, the payment of bonuses can be a complicated issue. Whether an employee’s bonus is payable upon cessation of their employment largely depends on the wording of the document that governs the bonus payment scheme.

When your employee has resigned voluntarily, they are not entitled to a termination package; however, they are still entitled to unpaid wages. Whether the bonus is considered part of those wages will depend on the wording of your employment contract and/or bonus policy. An important consideration is also whether the bonus was in fact earned, or whether it was a bonus entitlement limited by precise language.

Similarly, the wording of your employment contract and/or policy may also determine whether the employee is owed a bonus until the end of a reasonable notice period. Even if your employment contract or bonus plan requires an employee to be “actively employed” to receive a bonus, courts will still scrutinize documents governing the bonus payment scheme to see whether they successfully limit the dismissed employee’s bonus entitlements.

An employer’s bonus plan should also be clear about the terms of any deferred bonus and deferred payment options, as courts will examine these provisions as well.

Therefore, it is important to be draft clear provisions that specifically remove the bonus entitlement, given that sometimes bonuses can amount to tens of thousands of dollars for some employees, and litigation involving disputes of whether an employee is entitled to their bonus can end up being costly as well.

Employers should be especially careful where your employee’s bonus is an integral part of their compensation package.

If you believe you’ve drafted a clear provision, which turns out to be ambiguous, you may have to pay a hefty price. Bonuses at the end of employment, if not implemented properly, may lead to litigation.

If you are an employer who wants your employment contracts and/or policies drafted or updated, or an employee who wants to know whether you are entitled to your bonus, our team of experienced employment lawyers at Achkar Law can help.

Contact us by phone at (800) 771-7882, email [email protected], or fill out the Form below.