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HR Legal

The bonus of bonus policies

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Legal news
calendar 26 February 2023
globus Norway

Two employees were entitled to a performance bonus. However, because they resigned before the time of payment, they did not receive it. According to the Norwegian Court of Appeals, this was allowed because the bonus scheme was clear on the employees having to be employed at the time of payment.  

A market and sales director and an asset manager in a securities fund management company participated in the company’s bonus scheme. Both employees were entitled to the bonus and received a letter describing the entitled amount and payment plan.

The bonus was variable and performance based. Half would be paid immediately while the remaining half would be paid in three set payments over three years. However, it was a condition that the employees were employed at the time of payment.

Before receiving the rest of the payments, both employees resigned from their positions in the company. Afterwards, the company refused to pay the remaining amount.

The right wording can save millions

The court concluded that the employees were not entitled to the remaining bonus payments and the company was allowed to stop the remaining payments.

The bonus was not regulated in the employees’ employment contracts. Any bonus entitlement would have to come from the individually received letters or the company’s bonus scheme. Both documents were clear and showed no doubt that the bonus was conditioned and required the employees to be employed with the company at the time of payment.

It added weight that the employees were resourceful and had a substantial base salary. They were also familiar with how the bonus scheme worked and had significant bargaining power.

IUNOs opinion

This case illustrates that removing or reducing performance-based bonus schemes can be within the company’s managerial right.

IUNO recommends that companies only entitle employees to participate in the bonus scheme in the employment contract. The terms and conditions for bonus entitlement should be regulated in a separate policy. It is recommended that any conditions are made clear in the scheme and made available to the employees, such as a condition of employment at the time of payment.

[Borgarting Court of Appeal’s judgement of 2 February 2023 in case LB-2022-74400]

A market and sales director and an asset manager in a securities fund management company participated in the company’s bonus scheme. Both employees were entitled to the bonus and received a letter describing the entitled amount and payment plan.

The bonus was variable and performance based. Half would be paid immediately while the remaining half would be paid in three set payments over three years. However, it was a condition that the employees were employed at the time of payment.

Before receiving the rest of the payments, both employees resigned from their positions in the company. Afterwards, the company refused to pay the remaining amount.

The right wording can save millions

The court concluded that the employees were not entitled to the remaining bonus payments and the company was allowed to stop the remaining payments.

The bonus was not regulated in the employees’ employment contracts. Any bonus entitlement would have to come from the individually received letters or the company’s bonus scheme. Both documents were clear and showed no doubt that the bonus was conditioned and required the employees to be employed with the company at the time of payment.

It added weight that the employees were resourceful and had a substantial base salary. They were also familiar with how the bonus scheme worked and had significant bargaining power.

IUNOs opinion

This case illustrates that removing or reducing performance-based bonus schemes can be within the company’s managerial right.

IUNO recommends that companies only entitle employees to participate in the bonus scheme in the employment contract. The terms and conditions for bonus entitlement should be regulated in a separate policy. It is recommended that any conditions are made clear in the scheme and made available to the employees, such as a condition of employment at the time of payment.

[Borgarting Court of Appeal’s judgement of 2 February 2023 in case LB-2022-74400]

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Anders

Etgen Reitz

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Sofie

Aurora Braut Bache

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Alexandra

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Etgen Reitz

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