Are discretionary bonuses legal?

UPDATED: Sep 30, 2022

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Are discretionary bonuses legal?

My employer has paid bonuses every year for the last 8 to 10 years. These bonuses are tied to clearly defined goals and the percentage of our bonus is clearly defined to a percentage of

our salary. It is a significant portion of our compensation 10 to 35 of our salary depending on job title. If goals are met and the company is choosing not to pay just because they don’t want to. Can they get away with this?

Asked on April 22, 2016 under Employment Labor Law, Texas


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

If there is a written bonus agreement which sets out the criteria (e.g. targets) to get a bonus, it is not a discretionary bonus and must be paid. If it is not paid, the employees could sue for breach of contract to force the company to pay. But if there is no written agreement as to the bonus, then it is discretionary, even if the employer essentially has, in the past, used the same criteria or targets as a non-discretionary bonsus would. The problem is, regardless of the criteria, if it's not in writing, then it is discretionary: i.e. at the free choice, or discretion, of the employer. In this case, the employer could freely elect to not pay it--even if it has paid it for 8 - 10 years previously.

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