Can my employer void the bonus for the reason mentioned?
How Labor Laws Treat Bonuses in California
FEBRUARY 17, 2023 LEGAL TEAM
Many California employees work very hard for their bonuses, and it can come as a shock if they are not paid a bonus when expected or at all. However, do they have rights to that compensation, or is it just extra money handed out at an employer's discretion? Fortunately, California labor laws do address this concern.
California Labor Laws and Bonuses
There are two categories of bonuses, "discretionary" (unearned) and "non-discretionary" (earned).
All earned bonuses are treated as wages under California Labor Code Section 200. These bonuses are "earned" as part of an employment contract, work performance policy, obligation, or an understanding between the employer and employees. For example, reaching targets in sales, productivity, etc. Whereas "discretionary" or unearned bonuses are not protected by law as they are given to employees at the employer's discretion. For example, a holiday bonus, a reward for good service, etc. Earned bonuses factor into an employee's regular rate. As a result, a bonus can increase overtime, which is one and one-half times an employee's standard rate of pay.
Protections for Earned Bonuses
California labor law does provide employees with two protections when it comes to bonuses.
Labor Code 204
Since an earned bonus is considered wages and employees are entitled to the timely payment of wages, your bonus should be timely paid and appear on your pay statement. However, it is subject to withholding taxes.
Labor Code 201
When an employee is terminated, they are still entitled to their earned bonuses immediately, along with any other unpaid wages earned. Additionally, if an employee quits they are entitled to all wages earned and unpaid (including earned bonuses) within 72 hours of their last day unless they have given at least 72 hours' notice, then payment can be made on their last day.
Non-Payment of Bonuses
Employers should not be able to withhold earned bonus payments. Therefore, if your employer promised a bonus related to your performance that has not been paid after a reasonable amount of time has passed, you have the right to file a wage claim with the Labor Commissioner's Office. It can be filed online, by email, mail, or in person, and will start the process to collect on your unpaid bonuses. The Labor Commissioner's Office will then investigate your claim and determine whether wages are owed. Most cases resolve in a settlement conference, but if not, a hearing is scheduled, and a hearing officer will review the evidence and then decide the claim.
How Labor Laws Treat Bonuses in California
California Court of Appeal Confirms That Employer Can Lawfully Deny Bonus To Employee Who Is Terminated Prior To The Payout Date if This is Consistent With The Bonus Policy
In California, once a bonus has been promised to an employee, and the employee performs all of the conditions necessary to receive the bonus, the bonus is considered wages that must be paid. Eligibility for a bonus payment is determined by the terms of the bonus plan. A recent Court of Appeal case, Neisendorf v. Levi Strauss & Co., has confirmed that employers are free to establish bonus plans which condition bonus payment on the employee's continued employment with the company as of the payout date.
In Neisendorf, the employer maintained two bonus plans. Both bonus plans were based, at least in part, upon the company's performance during the fiscal year. The terms of each bonus plan provided that an employee was ineligible to receive a bonus if he or she was involuntarily terminated prior to the bonus payout date. Neither plan specified a precise bonus payout date, but indicated that bonus payments were usually made in January or February of the following fiscal year.
The plaintiff in Neisendorf was terminated for unsatisfactory performance in November 2002. Bonuses were paid to employees in February 2003. The plaintiff was not paid a bonus in February 2003 because she had been terminated for cause prior to the bonus payout date.
The plaintiff argued that, because the company determined bonuses based on the company's profits during the fiscal period during which she had worked, she had earned her bonus. She argued that the company's requirement that an employee be employed at some indeterminate date in the following fiscal year to be eligible for a payout essentially amounted to an illegal forfeiture of earned compensation.
The Court of Appeal disagreed, holding that an employer is not required to provide a bonus to an employee unless and until an employee has fulfilled all conditions of the bonus plan in accordance with the terms of the bonus plan. The court held that, because the terms of the bonus plans explicitly precluded employees who had been involuntarily terminated prior to the payout date from receiving a payout, and because the plaintiff had been terminated for cause before the bonus payout date, she had not met all of the conditions of the bonus plans and was not eligible for a payout.
In light of Neisendorf, employers may wish to review the terms of their bonus plans to ensure that the plans explicitly identify any conditions employees must meet to receive a bonus payout under the plans.
The Neisendorf decision is also important in that it held that employers are not required to provide reasonable accommodations to employers returning from leaves of absence protected by the California Family Rights Act.
California Court of Appeal Confirms That Employer Can Lawfully Deny Bonus To Employee Who Is Terminated Prior To The Payout Date if This is Consistent With The Bonus Policy | Casetext
