16 April 2014

When does a bonus have to be paid?

By Godelijn Boonman

These days a bonus is almost a standard component of an employee’s terms of employment.

It is now viewed in the same light as a pension, compensation for healthcare costs, a mobile phone, a laptop and a car. Holiday pay is, of course, enshrined in law and is a permanent and non-negotiable salary component.

A bonus is deemed variable remuneration and, as such, differs significantly from the fixed salary which an employee receives every month irrespective of his or her performance. Receiving a bonus is linked to the achievement of previously specified targets. Frequently, it is linked to a company’s general results, as well as the results achieved by the employee. Awarding a bonus is not always entirely objective. Employers still have a tendency to treat the awarding of a bonus as a discretionary power. In doing so, they hope to retain a certain degree of freedom. However, experience has demonstrated that, as far as possible, it is advisable to establish objective criteria. This is the only way to avoid discussions about who should be awarded a bonus and how much it should be; and, usually, the freedom employers hope to gain differs from the freedom they eventually end up with.

Recently, the court of appeal in Den Bosch ruled that an employer was acting contrary to good employment practices because the criteria for achieving a bonus were not clear.

Unclear criteria for a bonus

This case involved the director of a housing association whose employment contract included a bonus scheme. The criteria on which the bonus was dependent were never agreed upon by the parties at the time the employment contract was concluded. The parties subsequently entered into negotiations regarding these criteria’s but were unable to reach an agreement. When the employer refused to pay the director a bonus, the director applied to the sub-district court and claimed the entire bonus, being 20% of his annual salary.

Rather surprisingly, the sub-district court blamed the fact that the bonus criteria were still to be agreed upon and rejected the majority of the employee’s claim. The court of appeal formed a very different opinion. Firstly, it became apparent that the employee had, from the outset, tried to obtain clarity regarding the criteria. To this end, he had compiled draft criteria and tried to discuss these with the Supervisory Board. The Supervisory Board failed to act, or failed to act adequately, on a matter in which it could have been expected to act and, in respect of which, agreements had been made with the employee. The appeal court, therefore, ruled that the lack of criteria were for the risk and account of the employer. In its considerations, the court took account of two other facts; firstly the employee had received the maximum bonus for 2007 and 2008 and, secondly, the employer had sent an e-mail publicly expressing confidence in the employee’s abilities as a director.

Consequently, within the context of the employee’s employment contract, the employer had failed to fulfill its obligation vis-à-vis the employee by acting in a way contrary to good employment practices.

Tip: formulate objective criteria in terms of which a bonus can be expressed.

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Godelijn Boonman

Godelijn Boonman

Lawyer / partner

Godelijn Boonman has focused entirely on employment law for over 20 years, with international employment law playing an increasingly important role in her practice.

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