Bonus Disputes and Tech layoffs: Are Employees Facing Downsizing Entitled to Unpaid Bonuses?
As the giants of the tech industry continue massive layoffs in the face of current economic headwinds, more and more workers find themselves facing the challenges and uncertainties that come with being a victim of this restructuring.
Employees who have been affected by one of these mass layoffs likely have a lot of questions: Are they getting a fair severance package? Do they have a case for wrongful termination? What will happen to the bonuses they were promised?
Many tech professionals, who often receive a significant amount of their annual compensation in bonuses issued at the end of the year, are likely concerned that their former employer might withhold these funds if they’re no longer employed at the time of payout.
Unfortunately, it’s true that employers don’t have the incentive to pay out bonuses to workers terminated before the end-of-year payment period. But employees have some legal recourse to recover unpaid bonuses in certain cases.
Let’s break down the two different types of bonuses workers receive, describe what a non-discretionary bonus looks like, and outline how employees can make a case that they’re entitled to an unpaid non-discretionary bonus, even if they’re no longer employed.
When are Employers Not Required to Pay Out a Bonus?
The law categorizes bonuses into two types: discretionary and non-discretionary. Generally, employees are not entitled to recovery of bonuses that are considered discretionary or “unearned.”
No Right to Purely Discretionary Bonuses
A discretionary bonus is a payment given to a worker under circumstances entirely determined by the employer’s judgment.
The decision whether to offer it, as well as when and how much to pay, is completely up to the employer and not contingent on contractually outlined performance-based factors: e.g. hours worked, efficiency, or output.
The classic example of a discretionary bonus is an employer’s end-of-year holiday gift. Bonuses paid for special occasions, like celebrating a particularly good year, or recognizing a worker’s service tenure, are also discretionary.
Because this is a payment that is not linked to any specific actions on the part of the employee, it’s sometimes also referred to as an “unearned” bonus.
Employees are not legally entitled to the payment of discretionary or unearned bonuses that occur after the end of their employment.
California Workers Can Recover Certain Bonuses
California employees enjoy rights that few other states offer. For example, even purely discretionary bonuses can give rise to the most developed and powerful employee rights laws in the country.
Non-discretionary bonuses are generally recoverable even after an employee has been dismissed. This is because in many states, non-discretionary bonus payments are considered part of a worker’s earned wages.
For example, in California, non-discretionary bonuses are also referred to as “earned” bonuses, and in accordance with the state’s Division of Labor Standards Enforcement, they must be included in overtime pay calculations.
A non-discretionary bonus is a payment specifically linked to an employee’s performance in an agreement made between employer and employee.
This type of bonus could take the form of a reward offered to an employee or their division for achieving certain productivity or efficiency objectives in a period of time, e.g., closing a certain number of sales in a month.
They could also include incentives that are offered for workers to improve the quality of their work or to remain employed with the organization through a specific date.
The key thing that differentiates non-discretionary or “earned” bonuses from discretionary (“unearned”) ones is that they’re linked to objectives that are specific, known in advance, and agreed upon between worker and employer.
These agreements are often outlined in employment contracts, where they include a variable for determining payment as a percentage of base salary plus a multiplier based on performance objectives. The language of the contract should include stipulations on which the promised payout hinges.
These can be concrete, measurable performance goals set out in writing or more general “subjective and non-subjective” factors to be determined between you and your boss.
If your bonus was promised to you under these terms, it could be designated a payment of earned wages owed to you as compensation for your work.
Since, by law, employers generally can’t withhold or deduct wages that an employee has earned as legitimate compensation for their work, they’re responsible for paying out your bonus — even if you’ve been laid off.
How to Show that your Unpaid Bonus is Legitimately Owed Compensation
Disputes over the nature of an unpaid bonus can arise when there’s ambiguity around certain key terms of the agreement. For example, if:
- The bonus was orally promised
- The bonus was implied rather than explicitly expressed
- The bonus amount wasn’t clearly set, but was to be calculated as a variable based on subjective factors related to the performance of an individual employee (or that of their team/division)
Employers may contest the amount of a promised payment for a bonus agreement that was promised orally, or even deny that a past regularly given bonus was made based on non-discretionary factors.
Fortunately for employees, it’s still possible to win a recovery for an unpaid non-discretionary bonus, even in the absence of a written agreement.
Bonus disputes are handled either in state court or arbitrated before a Financial Industry Regulatory Authority (FINRA) panel. Courts in New York state, for example, have found oral promises for future bonuses to be legitimate and enforceable contracts.
Employees have also proven they’re owed payment for bonuses from implied contracts derived from evidence of past agreements and payments an employer has made.
If an agreement doesn’t include an explicit amount an employee should be paid, a court can determine an appropriate amount based on reasonable guidelines, like the employee’s past bonus history.
Even if an employee does not complete the full term of work from which the bonus would be calculated, you could still be due a prorated portion of your expected compensation — if you’re able to show that you successfully met the performance metrics set out in the agreement.
Guidance from an experienced employment attorney is invaluable for successfully navigating the bonus dispute process.
Get in Contact with an Employment Lawyer Today
An advocate up to date on the latest developments in state labor law can help you assess the circumstances of your employer’s bonus agreement, determine the compensation you’re entitled to, and compile the documentation needed to make a case for recovering what your employer owes you.
We’ve helped many former employees recover bonuses and can assist you in your effort to do the same.