What Rights Do You Have To Collect Your Annual Bonus If You Are Fired?

What causes of action does an employee have against his employer when he is terminated prior to receiving his annual bonus? Is the employee entitled to the bonus as wages even though he was terminated? These are the questions the U.S. Court of Appeals for the First Circuit recently contemplated in Weiss v. DHL.

Weiss was an employee of DHL. He was a director of national accounts. In 2007, Weiss was selected to participate in DHL’s “Commitment to Success Bonus Plan.” Under the plan, Weiss would receive a $60,000 bonus if he stayed with the company through 2009, and an additional $20,000 bonus if the company met its sales objectives in 2009. In the plan documents DHL management reserved “full power and discretionary authority” to administer the plan, and its decisions would be “final and binding” on the participants.

In October 2008, DHL changed the plan, making the full bonus contingent on Weiss’ continued employment, with an installment of $20,000 in January 2009 and the $60,000 remainder due in January 2010. The Plan stated that if Weiss was terminated “without cause,” he would be entitled to the bonus, but if he was terminated for “good cause,” Weiss would not be entitled to the bonus. Weiss was paid the first $20,000, but was subsequently terminated in September 2009. DHL exercised its discretion and refused to pay the remaining bonus balance of $60,000, finding that Weiss had been terminated for “good cause” as the result of failing to supervise his subordinates’ billing practices.

Weiss brought a civil action in United States District Court for the District of Massachusetts to recoup the full bonus amount. The case proceeded to trial on a breach of contract claim. After hearing all the evidence, the jury decided that Weiss was terminated without “good cause” and therefore, he was entitled to the $60,000. DHL appealed.

The Court of Appeals held that under the bonus plan, “Simply put, under the [‘Commitment to Success Bonus Plan’], the [Company] was free to deny Weiss the bonus if, in its sole judgment, his employment was terminated for good cause. … Neither we nor the district court can rewrite the contract to take away the Committee’s discretion and empower the jury to decide whether Weiss was terminated for good cause.” Therefore, the jury’s verdict could not stand.

The Court further held that “the preclusion of his breach-of-contract claim, moreover, does not mean that Weiss had no recourse, but to bow his head and accept the Committee’s decision.” The Appeals Court recognized that in fact Weiss may have had a viable claim against DHL for breach of the covenant of good faith and fair dealing as Massachusetts law implies in every contract a covenant of good faith and fair dealing. However, the Appeals Court held that Weiss abandoned this claim.

For employers, the Weiss decision illustrates the need for employers to follow procedures in discretionary bonus plans and also be cognizant that Massachusetts law implies in every contract a covenant of good faith and fair dealing that could trump the employee-at-will relationship.

For an employee, the decision emphasizes that when a company-wide plan is discretionary on its face, the employee will not have a claim for breach of contract if the bonus is not paid. Instead, if the employee wants to be guaranteed the bonus, the employee will have to assure that the specified requirements for when a bonus must be awarded and when it can be denied are included in the written contract.

Contact Attorney Mucci, an experienced employment law attorney, if you are an employee or employer and have questions about bonuses and an employee’s rights to collect a bonus upon termination.