California Labor Law Attorneys Argue that not all Discretionary Bonuses are Discretionary
California labor law defines a discretionary bonus as follows:
“Discretionary bonuses or sums paid as gifts at a holiday or other special occasions, such as a reward for good service, which are not measured by or dependent upon hours worked, production or efficiency, are not included for purposes of determining the regular rate of pay.”
This seems pretty straight forward; right? However, the term discretionary is misleading because neither party ever truly has absolute discretion due to “implied covenant of good faith and fair dealing”. All California employment situations are subject to “implied covenant of good faith and fair dealing”, whether you have an actual employment contract outlining the terms of your employment or if you are an at will employee. This doctrine monitors parties in contracts where one party has the right to exercise broad discretion that affects the other party’s rights. California labor law states when that party exercises their discretion it generally must be done “fairly”.
For instance, let’s say that there is an investment banker that is usually paid an annual bonus of around $100,000. Then one year the employer decides to give the employee a bonus of only $20,000 even though the employee had one of his most productive years and was out performing his peers. Come to find out, the employer was going to lay off this employee in a few weeks and had decided to distribute the remainder of his bonus to the other employees.
This is a perfect example of where the implied covenant applies to California employment law cases. If an employee performs satisfactory work during the year with the anticipation that he would be given a bonus similar to his coworkers and to what he traditionally received in previous years, the employer does not exercise discretion in “good faith” by paying him thousands of dollars less than they do to similar employees.
This might be an extreme case for most employees, but the same concepts can be applied to any bonus and even Christmas bonuses in certain circumstances. If you feel you have not received a fair bonus please contact a California labor law attorney to review your case.
Labor law can be complex but we have attorneys who can help. If you have questions about this or any blog post please call us at: (415) 230-2755 – 268 Bush St. #4202 San Francisco CA 94104
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