Am I entitled to an annual bonus if I lose my job?
The last quarter of the year (i.e. the months of October, November and December) often corresponds with the fiscal year-end for many employers. And in my experience, the end of the fiscal year often brings about two significant workplace actions: 1) the payment of annual performance bonuses; and 2) the layoff and termination of employees.
What happens when an employee, who has worked for most (if not all) of the fiscal year, is terminated before the annual performance bonus is paid? Would she or he be entitled to payment of the bonus?
Consult the Employment Agreement
Like most issues in employment law, the employment agreement should be reviewed to determine an employee’s bonus eligibility. Some employment agreements include a section about the bonus, which detail the circumstances that a bonus will be paid. Depending on the manner in which the bonus and termination sections in the employment agreement are drafted, and whether the employment agreement itself is enforceable, an employee may or may not be entitled to payment of the annual performance bonus.
Determine if the bonus is integral to the employee’s overall compensation
If the employment agreement does not include information about the payment of bonuses at termination, or if the employment agreement is not enforceable, then the common law determines whether the bonus will be paid.
Under the common law, for the performance bonus to be payable, it must be integral to the terminated employee’s overall compensation package. Whether a bonus is integral is based on a number of factors, which include:
- The percentage of the bonus to the employees overall compensation;
- Whether the bonus has been regularly paid and whether there has been a history of payment of the bonus to the employee; and
- Whether the bonus is discretionary (like a $500 Holiday Bonus) or whether the bonus is payable upon achievement of performance objectives. It should be noted however, that even if a bonus is considered ‘discretionary’, it still may be payable at termination if it is significant to the employee’s overall compensation and has been regularly paid.
An employee who has lost her/his job before the payment of the annual bonus may still be entitled to the bonus, even though their employment has ended. Furthermore, the payment of the bonus may not be limited to the time the employee actively served the employer – the employee may be entitled to payment of a pro-rated bonus during the notice/severance period.
Whether an employee is entitled to payment of a bonus is a contextual analysis, which is based on the employee’s individual situation. For this reason, an employee should consult with an employment lawyer to determine the full scope of their termination entitlements.
Have you or has someone you know lost a job? Contact us to determine whether you are entitled to a bonus, greater severance or other entitlements, which are important to you.