Bonuses are a key component of many employees’ compensation packages. Whether given as a reward for exceptional performance, as an incentive for meeting specific targets, or as part of a company’s year-end financial distributions, bonuses can significantly impact an employee’s financial stability. However, what happens when an employer refuses to pay a promised bonus?
Can employees take legal action to recover their unpaid bonuses? The answer depends on various factors, including the nature of the bonus, the terms of the employment contract, and labor laws in the relevant jurisdiction. This article explores when employees have a legal right to sue for an unpaid bonus and how they can go about recovering what they are owed.
Understanding the Different Types of Bonuses
Before determining whether legal action is possible, it is essential to distinguish between different types of bonuses. Not all bonuses are legally enforceable, and whether you can sue your employer depends largely on whether the bonus was discretionary or nondiscretionary.
Discretionary Bonuses
A discretionary bonus is one that an employer gives at their own will. It is not based on a contractual obligation but rather on an employer’s subjective judgment. Examples include:
- Holiday or year-end bonuses given as a goodwill gesture
- Spot bonuses for exceptional performance
- Retention bonuses paid at the employer’s discretion
Since discretionary bonuses are not guaranteed, an employer has the right to withhold them, even if they have given them in the past. Employees generally cannot sue for unpaid discretionary bonuses because they are not part of the employee’s agreed-upon wages.
Nondiscretionary Bonuses
Nondiscretionary bonuses, also known as earned bonuses, are bonuses that an employer is obligated to pay once certain conditions are met. These bonuses are usually outlined in an employment contract, company policy, or verbal agreement. Examples include:
- Sales commission bonuses based on achieving a specific target
- Performance-based bonuses outlined in an employment contract
- Incentive bonuses tied to company profits
Nondiscretionary bonuses are considered part of an employee’s wages. If an employer refuses to pay such a bonus despite the employee meeting the specified conditions, the employee may have a legal claim for unpaid wages or breach of contract.
Legal Grounds for Suing Your Employer
If you have met the conditions for receiving a bonus and your employer refuses to pay, you may have legal grounds to sue under one or more of the following claims:
Breach of Contract
If your bonus is stipulated in your employment contract, your employer is legally bound to pay it once the conditions are met. Failing to do so constitutes a breach of contract, and you can file a lawsuit to enforce your rights. A written contract provides the strongest evidence, but in some states, verbal contracts may also be legally enforceable, though harder to prove.
Violation of Wage Laws
In some states, nondiscretionary bonuses are considered wages under labor laws. If an employer withholds such bonuses, it could be classified as wage theft. Employees may be able to file a wage claim with a state labor board or sue under federal wage and hour laws.
Fraud or Misrepresentation
If your employer promised you a bonus to induce you to stay at the company or meet a goal, and then refused to pay, they could be liable for fraud. If an employer knowingly made false promises about bonuses, a lawsuit based on fraudulent misrepresentation may be an option.
Retaliation or Wrongful Termination
If you believe you were fired to prevent you from receiving an earned bonus, you might have a claim for wrongful termination. Many jurisdictions protect employees from retaliation for asserting their right to unpaid wages, including bonuses.
Civil Theft
In rare cases, if an employer deliberately withholds an earned bonus with malicious intent, an employee may have grounds to sue for civil theft. This type of lawsuit is more complex and harder to prove, as it requires showing the employer acted criminally.
Can My Employer Withhold My Bonus If I Quit or Am Fired?
Whether you are entitled to a bonus after leaving a job depends on the type of bonus and the terms of your employment agreement.
- Discretionary Bonuses: Since these are not contractually obligated, employers can withhold them if you quit or are terminated.
- Nondiscretionary Bonuses: If you have met all the conditions to earn a bonus before resigning or being terminated, your employer is required to pay it.
- Policy-Based Bonuses: Some employers include clauses in their policies stating that employees must be employed at the time of bonus distribution to qualify. If such a policy exists, the employer may legally refuse payment if you leave before the payout date.
If you suspect you were fired to avoid payment of your bonus, you may have grounds for a wrongful termination lawsuit.
Steps to Take to Recover an Unpaid Bonus
If your employer refuses to pay a bonus you believe you have earned, take the following steps:
Review Your Employment Contract and Company Policies
Check whether your contract or employee handbook specifies conditions for earning a bonus. If a bonus is explicitly outlined and you have met the requirements, you have a stronger case.
Gather Evidence
Collect any documentation that supports your claim, including:
- Employment contracts
- Offer letters
- Emails or communications referencing the bonus
- Performance reports or sales records
- Pay stubs showing prior bonus payments
Communicate with Your Employer
Before pursuing legal action, attempt to resolve the issue internally. Speak to your manager, HR department, or payroll team about the unpaid bonus. Sometimes, a simple misunderstanding or clerical error can be corrected without legal action.
Send a Formal Demand Letter
If internal communication does not resolve the issue, consider sending a formal demand letter outlining your claim and requesting payment. This letter should state:
- The bonus amount owed
- The terms under which it was earned
- A deadline for payment before further action is taken
File a Wage Claim or Lawsuit
If your employer still refuses to pay, you may:
- File a wage claim with your state’s labor board if nondiscretionary bonuses are considered wages under state law.
- File a breach of contract lawsuit in civil court with the help of an employment attorney.
Potential Outcomes of a Lawsuit
If you sue your employer and win, the court may order the employer to:
- Pay the bonus owed
- Cover legal fees and court costs
- Pay additional penalties or interest, depending on state laws
Most cases settle before going to court, as employers prefer to avoid legal expenses and potential reputational damage.
Conclusion
If your employer refuses to pay a promised bonus, you may have legal options to recover your compensation. The first step is determining whether your bonus was discretionary or nondiscretionary. If it was nondiscretionary and you met the conditions, you may have a valid legal claim for breach of contract or unpaid wages. By reviewing your contract, gathering evidence, and consulting an employment attorney, you can take the necessary steps to assert your rights and receive the bonus you have earned. If your employer is unlawfully withholding your bonus, do not hesitate to seek legal counsel and take appropriate action to recover what is rightfully yours.