Bonus: a favor or a right?

Especially in the sales industry, performance bonuses are not uncommon. This was also the case in the matter that the subdistrict court in Rotterdam had to deal with at the end of 2023.

The employee in question had received a substantial bonus from his employer every year since 2015, until 2023. According to his employer, the reason was that the granting of the bonus was a completely discretionary authority, and the employer had therefore decided not to grant the employee a bonus.

According to the employer, the decision was influenced by the fact that the employee had previously resigned to work for a (direct) competitor, had sent confidential information from the employer to his private email, and his results that year were lower than in previous years.

Bonus

The subdistrict court ruled as follows. Since it was not (written down) under what conditions a bonus could be claimed, it is a discretionary authority of the employer. In the decision to (not) grant the bonus, the employer must observe the principle of good employment practices. The judge therefore assesses whether the employer could reasonably have come to its decision.

In this specific case, the judge decided that the employer had wrongly decided not to pay the bonus. He considered that it had not been sufficiently established that a condition for the bonus was that the employee had to be employed at the time of payment. It was also not established that the employee had joined the direct competitor, nor that this was not allowed. The disappointing results were also not a valid justification, as other traders with equally disappointing results had received a bonus.

Lesson

The lesson from this ruling is that even if the granting of a bonus is at the employer’s discretion, this does not directly mean that the employee cannot claim a bonus. The employer must be able to explain why there is or is not an entitlement to a bonus, after which the judge assesses whether the employer could reasonably have come to that decision.

Although it is not mandatory to put a bonus scheme in writing, the judge ruled that an employer can be expected to clearly and unambiguously inform its employees of important conditions for qualifying for a bonus payment – such as the condition that the employee must be employed at the time of payment.

It is therefore advisable to establish a clear and objective bonus scheme in advance, which can be referred to if the bonus is not paid. This is to avoid discussions and procedures like the one discussed.

Acquired Right

After a good year, an employer may decide to distribute part of the profit among its employees. If this happens for several consecutive years, an employee may argue that they are entitled to this profit-sharing in subsequent years as well.

In the aforementioned case, the employee tried to argue this, but the judge did not agree. Both parties agreed that the bonus scheme was part of the employment contract. The question was whether the employer was obliged to make the payment based on that scheme.

Course of Conduct

If such a discussion does arise, a judge may conclude that a course of conduct – such as a recurring profit distribution – has become a term of employment, and thus the employee has an acquired right to it.

The judge will then consider, among other things, what expectations the employer has created and whether the employee could reasonably expect to be entitled to that course of conduct in subsequent years.

Clarity

In this context, it is also wise to create clarity. If a profit distribution is made to employees in a given year, clearly and in writing state that this payment is a one-time occurrence and be cautious about making similar periodic payments over a long period. Additionally, seek advice from your employment law advisor.

More information

Do you have questions regarding this subject? Or need advice in a similar case? Please feel free to contact us.