Is A Bonus Really "Discretionary?" Employers Should Be Careful

Spring is bonus time in many workplaces. And many employers prefer to use "discretionary" bonuses rather than establishing formal bonus plans.

But employers shouldn't be lulled into a false sense of security merely because a bonus is "discretionary" and is not established through a written employment contract and/or plan document. The common law presumption is that terminated employees are entitled to pay in lieu of reasonable notice based on their total compensation. If a bonus is found to be integral to an employee's compensation, then he or she will have a claim for it as part of a wrongful dismissal action.

Employers who use discretionary bonuses need to be aware of the main factors courts consider in determining whether a discretionary bonus is an integral part of an employee's compensation: