Enforceability of Employee Bonuses

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Most Common Employment Law Issues:

Must an Employer Honor a Promise to Pay an Employee Bonus?

It depends.  In most cases, courts only enforce employee bonus promises if they are part of the employee's original employment contract.  In other words, a bonus can only be paid in anticipation of future work, rather than as a reward for work that has already been done.

Why is an Employee Bonus Only Good for Future Work? 

In order to enforce a bonus promise, courts usually try to analogize the promise to an actual contract.  For a contract to be valid, both the employer and the employee have to exchange something of value.  In other words, the employer has to get something in return for the employee bonus.

This is usually the case when a bonus is promised for subsequent employment.  Here, the employer's return benefit comes from employee's future work.  However, this cannot be the case when a bonus is promised for past employment.  Since the employee has already done their work, any promise to provide a bonus lacks a return benefit.  Simply put, an employer cannot exchange for something that they have already received.

Can a Promised Employee Bonus Be Enforced Even if it's not Considered a Contract?

In some cases, yes.  Even without proving a contract, a court may still hold an employer liable for a promised bonus on the basis of detrimental reliance.  However, it is important to note that courts reserve detrimental reliance only for cases that present great injustice.

For example, suppose employer X promises employee Y a bonus for his past work and contribution.  Y, hoping to use the money as down payment for a house, talks with X to confirm the bonus and explain his need for the money.  Despite Y's concerns, X reassures him that the bonus will be paid, and Y goes ahead with purchasing the house.  In this case, although a contract is unlikely to be formed, Y may still be able to claim detrimental reliance in the case that X fails to pay the bonus.

If an Employee is Terminated, Must an Employer Still Honor a Promise to Pay an Employee Bonus? 

It depends.  In many cases, courts have allowed partial payment of a bonus, depending on the actual duration of the employment.  However, this has only been the case where termination was based on good terms (i.e. a mutual decision between employer and employee, or termination by the employer without fault of the employee).  In cases where an employee had quit, or was fired due to disciplinary reasons, courts have refused to honor promises for an employee bonus.

How Can a Lawyer Help Me?

If your employer has failed to honor a promised employee bonus, you should contact an experienced employment attorney to learn more about your rights.  A lawyer can look at your employment contract and determine whether or not it includes payment of an employee bonus.  In the event that your contract does not include an enforceable employee bonus, an attorney may also be able to establish one based on detrimental reliance.

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Last Modified: 05-06-2014 04:25 PM PDT

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