EMPLOYERS MAY AVOID BONUS PAYMENTS BY TERMINATING EMPLOYEES PRIOR TO THE PAYOUT DATE

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By: JAMES M. REID

On November 8, 2016, the Michigan Court of Appeals (in Anthony Roberts v HBPO North America, Inc., an unpublished decision) reaffirmed that continued employment on the date that the employer pays a bonus may be legally required before the employee is eligible to receive a bonus.  Stated another way, employers may avoid having to pay a bonus to employees who quit or are terminated before the payment is made even though all other performance metrics have been satisfied.

In this case, Mr. Roberts allegedly “met and exceeded his targets and earned a bonus under the system in the amount of $68,084” during the 2014 year.  However, the employer’s bonus policy stated that bonus payments were not due until the last day of April in the following 2015 year.  On April 22, 2015 (within eight (8) days of the bonus payout date), the employer terminated Mr. Roberts for allegedly violating a company policy and refused to pay any bonus.  The court determined that the employer’s policy of requiring active employment on the payout date is enforceable.  Although this case is harsh, courts are required to “interpret and enforce the clear and unambiguous terms of the policy as written”.

Specifically, the Michigan Payment of Wages and Fringe Benefits Act allows employers to pay bonuses and other fringe benefits (including paid time off) “in accordance with the terms set forth in the written contract or written policy” (MCL 408.471(e) and 408.473).  Employers are not required to pay any bonus or unused paid time off after separation as long as they have a clear written policy that specifies that no payments will be due upon separation.

This reminds me of the proverbs “Don’t count your chickens before they hatch” and “A bird in the hand is worth two in the bush”.

Before refusing to pay bonuses and/or unused paid time off to separated employees, employers should consult with an experienced employment attorney to evaluate the strategies and risks.  For example, employers should evaluate whether denying payment would violate other laws such as the Michigan Sales Representative Act (if an employee argues the bonus is a commission), and/or discrimination laws (if employees claim that other employees have received bonuses and/or unused paid time off after separation).  Likewise, if employers treat employees unfairly, it could negatively affect the morale of the remaining employees and/or the employers’ reputation.  If employers decide to pay separated employees without being required to do so under an agreement, policy, or law, it is advisable to require execution of a release agreement in consideration for such payment.

This article was written by JAMES M. REID, a member of the Legal Affairs Committee of Detroit SHRM, a Resource Partner and Director of MISHRM, and a shareholder of the law firm of Maddin Hauser Roth & Heller PC located in Southfield, Michigan. He can be reached at (248) 351-7060 or jreid@maddinhauser.com. Detroit SHRM encourages members to share these articles within their organizations; however, members should refrain from forwarding them outside their organizations or printing for mass distribution without written permission of the Detroit SHRM Executive Committee. December 2016.