Is the rule that employees are not eligible to receive bonuses if they leave before the bonus is paid valid?

I. Introduction

Bonus, which sounds extremely tempting, may also often be confusing. The bonus being issued or not, inevitably makes someone glad and someone not.

 

What exactly is a bonus from the legal point of view? According to the Regulations on the Composition of Gross Wages promulgated by the National Bureau of Statistics in 1990, bonuses refer to labor rewards paid to employees for their excess works or their increased profits and saved spending, including production awards, etc. In the Interpretation on Several Specific Scopes of the Regulations on the Composition of Gross Wages, it is further clarified that the scope of production awards includes "comprehensive awards for assessing various economic indicators and year-end bonus (labor dividends)". The often-said performance bonuses and year-end bonuses nowadays should belong to this category.

 

It seems that the regulations are clear, but in practice, there are many disputes about bonuses. Based on the actual handling of several employee bonus disputes after resignation and a legal search of related cases, this article attempts to analyze the relevant judicial practice cases, and briefly explores the effect of the rule “ employees are not eligible to receive bonuses if they leave before the bonus is paid” in Shanghai,  so as to provide a reference for the majority of employers to carry out related management.

 

II. Case Analysis

(A) The bonus could be withheld when the employee is lawfully discharged

In my view, when employees are legally discharged by the employer because of personal fault, failing to meet the condition because of their own behavior, they should bear the consequences of their own fault behavior. The employer therefore has the legitimate justification to refuse issue the bonus. Some relevant cases also support this view.

 

For example, according to the second instance judgment of “Mr. Lian vs. an equipment trading company”, the company's employee handbook stipulated that the assessment period of the year-end bonus for the previous year is from January 1 to December 31... employees who leave before the bonus payment date, May 31 (inclusive), will not be eligible to get the year-end bonus. However, Lian was discharged by the company in April due to the violation of the labor contract and the executive loyalty obligations, and therefore did not meet the condition of still being employed when the payment of the year-end bonus was made. Hence the company was ruled to be entitled not to issue the year-end bonus to Lian.

 

Another example is the second instance judgment of “Mr. Wu vs. a trading company”, in which the two parties agreed that the bonus should be reviewed in February of the following year and paid in May, and it was clearly stated that the worker must still be employed by the time of the bonus payment. Although the court of the first instance recognized that the contract was legally discharged because of Wu’s serious violation, the court also pointed that Wu had completed the work of the previous year when the contract was discharged in March, so Wu’s request for payment of bonuses was supported. However, the court of second instance held that the bonus payment conditions agreed by the two parties are valid, and the employer did not deliberately prevent the achievement of the conditions of payment. Thus, the second instance court reversed the original judgment and rejected Wu's request for the bonus.

 

It can be seen from the above two cases that when employees are legally discharged by the company because of their own fault and do not meet the condition of bonus payment, the company’s decision not to pay the bonus is more likely to be supported by the court.

 

(B) The bonus could be withheld when the employee resigns for his own sake

When the employee is not employed by the date of payment due to resignation, the court will usually recognize the legality of "being still employed as a bonus payment condition". The court is likely to hold that the employer could refuse to pay the bonus since the condition of bonus payment is not met due to the employee's personal resignation.

 

For example, in the second instance judgment of “Mr. Guan vs. a technology company”, the court of second instance held that the company had stipulated that the condition for receiving the year-end bonus was that "the employee was still in employment on the date of payment" before Guan was employed, and the communication email between Guan and the company HR before leaving the company also proved that he was aware of the bonus policy. But he still chose to leave the company before the date of payment. Therefore, it is not improper that the company decided not to pay his year-end bonus according to the rules and regulations.

 

Another example is the second instance judgment of “Mr. Wang vs. a design company”. The second instance court held that Wang should have known that he could not get the annual research fund when he made the decision to resign, and there was a lack of foundation for him to consider the relevant agreement invalid and to demand the company to pay the annual research fund now. As a result, his such claims were rejected by the court.

 

The above two cases show that when the employee does not meet the condition of still being employed of bonus payment due to his own resignation, the company's decision not to pay the bonus is also more likely to be supported by the court.

 

(C) The bonus should be paid when the contract is discharged by objective circumstances

When the employee is not employed on the bonus payment date because the employer legally discharges the contract due to significant changes of objective circumstances, the court usually holds that it is the company who prevents the bonus payment condition from being achieved. Therefore, the company should pay the bonus.

 

For example, in the second instance judgment of “Mr. Fang vs. an insurance company”, the company's employee handbook stipulated that bonuses are calculated and paid based on company's performance and employee performance according to the company's policy, and that employees are not entitled to bonuses if they leave the company in or before the month the bonus is paid. The court of first instance held that since Fang had left the company before the bonus was paid, reaching no agreement with the company under significant changes of objective circumstances, he was not eligible to receive the bonus considering his failure to meet the condition of the bonus payment, so the court rejected Fang’s request for the company to pay the annual bonus. However, the court of second instance held that the two parties failed to agree on the change of the labor contract, proving that it was not Fang’s subjective fault causing the labor contract to come to an end. And the company did not cite any evidence to prove that the performance of Fang did not meet the requirements, which was sufficient to determine that he had worked for the company for a whole year and performed his duties normally. Thus, the company's claim that Fang had left the company before the month of payment of the year-end bonus and therefore was not eligible for the bonus was improper. As a result, the court supported Fang’s request for the year-end bonus instead.

 

According to the above case, we can find that when the employee does not meet the conditions of bonus payment due to the significant changes of objective circumstances, the company's request of not to pay the bonus is more difficult to be supported by the court.

 

(D) Whether the bonus should be paid when the contract is terminated remains disputed

In the first instance judgment of “Mr. Wu vs. a trading company”, the parties agreed that the performance bonus depended on the completion of both the departmental and individual annual performance goals scheduled by the company. In addition, to be eligible for the bonus, Wu must be on the company's payroll on March 31 of the coming year when the company issued the performance bonus. On February 24, the company notified Wu that the contract would not be renewed and the labor relationship between the two parties would be terminated. The court held that the expiration of the labor contract between the two parties was due to the company's failure to renew the contract with Wu, so Wu's not being employed by March 31 was not caused by himself. Therefore, the company’s claim that Wu did not meet the condition for the performance bonus payment was unreasonable. As a result, the court ruled that the company paid him the performance bonus.

 

But in another similar case, the second instance judgment of “Mr. Zhao vs. a rubber products company”, the company stipulated that the condition for the payment of year-end bonuses include the worker still being employed on December 31. The labor contract expired on December 25, and the company informed Zhao not to renew the contract. The court of first instance held that the termination of the contract resulted in Zhao's failure to meet the condition for payment of the year-end bonus, which was not caused by the company's wrongful act, and the court can not interfere with the employer's reasonable right to dispose of the bonus, so the court did not support Zhao's request for the year-end bonus. The court of second instance also held that the bonus is different from fixed labor remuneration, which has an incentive nature and belongs to the scope of the employer's operational autonomy, so the original decision was upheld.

     

In my opinion, the renewal of the labor contract is a two-way choice. The employee could choose not to renew the contract, and so does the company if the laws allow. When the company does not improperly prevent the bonus payment condition from being achieved, and the employee fails to meet the conditions of payment due to the termination of the contract, the company should be given the right not to issue the bonus.

 

(E) The bonus should be given when the contract is illegally discharged

When an employee is not employed on the date of payment due to an unlawful discharge by the employer, the court will usually not support the company's decision not to pay the bonus.

 

For example, in the second instance judgment of “a trading company vs. Mr. Shao”, the employee handbook provided that employees who leave before May 31, the date of bonus payment (including the day), shall be ineligible for the year-end bonus. The court of first instance held that Shao's failure to be employed by the time the bonus was paid was caused by the company and the discharge was not legal, so the court rejected the defense that the employee must be employed by the time of payment. The court of second instance also agreed with the court of first instance and stated that according to the law, for a conditional civil juridical act, if one party improperly prevented the achievement of the conditions for its own benefit, the conditions shall be deemed to have been achieved. Therefore, the condition shall be deemed to have been fulfilled since Shao was not employed by the time the bonus was paid due to the company's illegal discharge, and Shao's bonus request was supported.

 

There are lots of cases of this kind. When an employee is not eligible for a bonus due to an illegal discharge, the company's decision not to pay the bonus will generally not be upheld by the court.

 

III. Summary

Through the foregoing case analysis, we can find that the courts in Shanghai generally believe that bonuses are different from fixed labor remuneration, and are additional rewards for employee performance or incentives for providing long-term and stable labor, etc. The employer can independently determine the objects, conditions and basis of bonus payment according to law. It is usually considered to be within the scope of operational autonomy for the employer to set the rule that employees are not eligible to receive bonuses if they leave before the bonus is paid. This condition of payment is generally recognized to be valid in the jurisdictions of the Shanghai No.1 and No. 2 Intermediate People's Courts.

 

However, the application of this granting condition is limited, and it is necessary to consider the imputation of the cause of not fulfilling the condition. Article 159 of the Civil Code stipulates special provision on conditional civil juridical acts :“For a juridical act subject to a condition, if a party prevents the fulfillment of the condition by improper means for its own benefits, the condition shall be deemed fulfilled; or if a party hastens the fulfillment of a condition by improper means, the condition shall not be deemed fulfilled”.

     

We can briefly summarize that in the case of the rules and regulations or the labor contract that stipulate “employees are not eligible to receive bonuses if they leave before the bonus is paid” itself are legal and valid, when it is not the fault of the employer that causes the employee to fail to meet the condition, the employer will generally be supported by the court for not paying the bonus; when it is the fault of the employer that causes the employee to fail to meet the condition, it is difficult for the employer to be supported by the court for not paying the bonus.

     

It is recommended that the employer consider factors such as the reasons for the employee's departure, service time, work performance and contribution to the company before making the decision on the payment of bonuses or not, in order to avoid unnecessary legal risks or losses to the company.