Employment law: awarding a bonus
These days, a bonus is almost a standard component of an employee’s terms of employment. Employees view a bonus in the same light as a pension and compensation for healthcare costs. However, a bonus is different from holiday pay, which is a permanent and non-negotiable salary component.
Awarding a bonus
A bonus is a variable payment depending on one’s performance. As such, it differs from the fixed salary which an employee receives every month irrespective of his or her performance. Receiving a bonus depends on 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. They make an individual judgement about to whom they grant a bonus. In doing so, employers 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.
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 unclear.
This case involved the director of a housing association whose employment contract included a bonus scheme. The parties never agreed upon the criteria on which the bonus depended at the time that they signed the employment contract. The parties subsequently entered into negotiations regarding these criteria 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, which was 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 (director’s) claim.
The court of appeal formed a very different opinion. Firstly, it became apparent that the employee (director) had, from the outset, tried to obtain clarity regarding the criteria. He had compiled draft criteria and tried to discuss these with the Supervisory Board. However, the Board failed to act, or failed to act adequately in 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 employer was accountable for the lack of criteria. 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 to the employee by acting in a way that was contrary to good employment practices.
Advice: it is highly advisable to formulate clear and objective criteria for awarding a bonus
Questions? More information?
If you are facing a similar challenge at work and would like to get legal advice about your rights in the Netherlands, please contact our experts in Dutch employment law.
Godelijn experienced an international upbringing and education as an expat child living in Africa and England. Back in The Netherlands, she studied law at the University of Utrecht (1990). She then embarked on her legal career as a lawyer by working 10 years for the well-known law firm of ‘Wladimiroff en Spong Advocaten’. In 2000 she joined GMW lawyers as a partner and is the head of the Labour law and Pension section.
Godelijn specialises in international employment law and has extensive experience in dealing with both non-contentious and contentious international employment matters including (collective) redundancy packages and dismissal. She works for both companies and individual employees, enabling her to keep an open mind to both sides of a case. Naturally she helps her clients when a problem has arisen, but prefers to act before an escalation has taken place. Advice on a fair Human Resource policy is an essential part of her work.
Godelijn Boonman is considered to be the undoubted employment specialist for the expat community because she is bilingual, has a large international clientele and a wealth of experience in international employment law matters. She is therefore frequently asked to be the key note speaker at international seminars.
Godelijn has a keen interest in the international community and is a member of the advisory board of ACCESS .