Here are a few basic things that California workers should know about their rights to a bonus for the work performed:
1. What is bonus?
A bonus is money promised to an employee in addition to the salary, commission, or hourly rate usually due as compensation. The purpose of a bonus is usually to induce or encourage employees to perform better and stay longer with the same employer.
2. Discretionary or Mandatory
A bonus can be in a form of gratuity where there is no promise that it will be paid, and the employer would usually make it clear that it’s discretionary in their policies or employment offer letter. A bonus can also be a required payment where a promise is made that it will be paid in return for achieving a certain result.
3. Quitting / Resigning Before Bonus is Vested
An employee who voluntarily leaves his job before the bonus calculation date is generally not entitled to receive it if the employer has expressly qualified its promise for a bonus on a requirement of continued employment. Lucien v All States Trucking (1981). However, if a bonus payment hasn’t been expressly conditioned on continued employment, an employee who quits may be entitled to the bonus if other conditions have been satisfied. Hill v Kaiser Aetna (1982).
Interestingly, a bonus plan containing a provision that an employee who quit his employment and went to work for a competitor forfeited his right to the bonus has been held to be unenforceable as an illegal restrained on trade. Ware v Merril Lynch (1972).
4. Terminations and Receiving Bonus
If the employee is terminated before completion of all of the terms of the bonus agreement, and there is no valid cause for termination, the employee may be entitled to recover at least a pro-rat share of the promised bonus, based on this DLSE opinion letter. These types of situations are usually very fact specific, require close examination of whether there was “good cause” for termination and if not – what share of bonus the employee in question is entitled to given the work performed, the established bonus plan, and other factors. Of course, evidence that the true reason for terminating an employee is to avoid paying him bonus is a significant factor in favor of an employee’s right to a bonus, and can also form a basis to other claims against the employer, including claims for fraud or negligent misrepresentation.