• If an employee is terminated before the date of a bonus payout, certain circumstances guide whether a company is obligated to pay the bonus.

Under certain circumstances, employers can deny payout of a bonus if the employee does not remain employed through the date of payout. Unlike a commission, a bonus is not necessarily “earned,” but could simply be provided as a reward.

For example, if a bonus is paid under a certain set of defined conditions (such as meeting sales and profit goals), then those conditions can include a requirement to remain employed through the payout date. The distinction is that most bonus plans involve money promised to an employee in addition to the monthly salary, hourly wage, or commission rate usually due.

Courts have found that if a bonus plan does not expressly state that individuals must remain employed at the time of payout to be eligible, the employee might be able to file a claim and collect the bonus. However, if the requirement to remain employed through the payout date has been clearly stated as one of the criteria for eligibility, then payout can be denied (especially if the employee voluntarily quits or leaves the company).

There is some gray area if an employee is terminated or discharged. For example, if an employee is under a performance improvement plan, but fails to improve and is terminated, the bonus could be denied. However, if an employee is released without apparent cause, and the termination occurs shortly before the payout would be made, the employee might have a legal claim to the bonus. Common law holds that employees cannot be terminated specifically to deny a bonus to which the employee would otherwise be entitled. Note that “common law” is not an actual law, but is derived from court rulings on matters such as contract disputes.