Bonus plans conditioned on active employment: substantial performance decided case-by-case

GEORGE DEUKMEJIAN, Governor
STATE OF CALIFORNIA

DEPARTMENT OF INDUSTRIAL RELATIONS

DIVISION OF LABOR STANDARDS ENFORCEMENT
525 GOLDEN GATE AVENUE
SAN FRANCISCO. CA 94102 ADDRESS REPLY TO,
(415) 557-3827 P.O. BOX 603
San Francisco, CA 94102

                                      June 3, 1987           IN REPLY REFER TO,

Richard S. Rosenberg, Esq.
Attorney at Law
Ballard, Rosenberg & Golper
1900 Avenue of the Stars, Suite 2300
Los Angeles, CA 90067
Dear Mr. Rosenberg:

This is in reply to your letter of April 20, 1987, concerning employee bonus plans.

The answers to the questions set forth in your letter are as follows:

1. A bonus plan may provide payments to be made only to those plan participants who are actively employed on a bonus payment date. However, there are always questions of substantial performance and questions relating to the services required to earn the bonus. The Division accepts on a case-by-case basis claims for bonus, or a partial bonus, on the basis of substantial performance when termination takes place before the bonus is paid out. Each case is analyzed on its own facts to determine if a bonus or partial bonus is appropriate.

2. The cause of termination may be a factor even though the main question is whether the employee earned the bonus or a portion of it. There are situations where the employee terminates a relationship when he/she may have good cause for resigning or when there are factors beyond his/her control which may affect his/her eligibility for the bonus.

I am aware that the above answers are not definitive; however, as bonus plans have so many variables as to qualifying performance and how amounts are calculated, I can only give you answers in general terms. It is our policy to look at disputed claims for bonuses on a case-by-case basis; each claim must be reviewed on its merits.

Very truly yours,

Lloyd W. Aubry, Jr.
State Labor Commissioner
LWA:ba

DLSE 905 1987.06.03