Are you entitled to a performance bonus?

News article

When used correctly, performance bonuses are a motivating bonus system. However, from a labour law perspective, there are a lot of things that can be unclear about performance bonuses.

Whether a performance bonus system is considered to be part of the terms of employment depends on whether the bonus system is defined in the employment contract, whether the bonus system is referred to in an individual employment contract or whether the unilateral decision of the employer can be considered to have become established as a standard term of employment.

For individual employees, it is best if the performance bonus is defined in as much detail as possible in the employee's personal employment contract. As a rule, if there is no detailed agreement on the matter, the employer can unilaterally decide on performance bonus systems and their implementation. For this reason, performance bonuses generally are not considered part of the terms of employment.

The payment of performance bonuses is rarely defined in employment contracts, and if it is, the employment contract may simply state that performance bonuses are paid in accordance with the company's terms valid at the time. The company's terms often state that the company has the right to define the requirements for the payment of performance bonuses and change the terms.

It is best if the performance bonus is agreed on in as much detail as possible in the employee's personal employment contract.

Case law has not found it unreasonable to include a clause in an employment contract stating that the employer has the right to change the terms of commission payment during the validity of the contract.

Unilateral terms can become binding terms of employment

Even performance bonus systems unilaterally defined by the employer can become established as a standard and binding term of employment. However, care should be taken with regards to the establishment of performance bonuses as standard terms.

In case law, the establishment of such terms as standard has primarily been found to apply to benefits that could have been agreed on with individual employees. This includes benefits such as Christmas bonuses and discretionary pension benefits.

For example, a Christmas bonus that has been paid for decades has been considered to be an established employment benefit in case law, even if a decision about the payment of the bonus was made each year. Later, the Christmas bonus was replaced with a performance bonus with the employees' approval. However, the court found that the company did not have the right to change the performance bonus terms, because in practice, the change meant a material reduction in the employees' possibilities of receiving performance bonuses, and the employees had not approved such a change.

Discrimination is also prohibited for performance bonuses

Employers must treat their employees equally, unless they have justified grounds for making an exception considering the employee's duties and position. The principle of equal treatment means that even when granting benefits unilaterally, the employer cannot treat employees in similar positions differently without appropriate and actual grounds.

Therefore, the prohibition on discrimination also applies to performance bonuses unilaterally granted by the employer. An employment relationship being part-time or fixed-term in nature is not a valid reason for automatically disqualifying someone from receiving performance bonuses.

Disputes related to performance bonuses have been processed all the way up to the Supreme Court.

For example, the Supreme Court has decided that pre-emptively disqualifying employees with part-time or fixed-term employment relationships from receiving performance bonuses based on the part-time or fixed-term nature of their employment relationship is considered discrimination. However, the decision in question found that the employer did have acceptable and appropriate grounds for disqualifying employees with fixed-term apprenticeship relationships from the bonus programme.

Naturally, the prohibition on discrimination also applies to family leave. Maternity leave is not allowed to cause a reduction in bonuses or allowances intended to reward employees for work performed. According to the Court of Justice of the European Union, maternity leave must be considered the same for the purposes of calculating bonuses as any periods of normal work if the bonus is intended as remuneration for work done in the year the bonus is granted. Otherwise, a female employee would be discriminated against, as they would be working normally if they were not on maternity leave.

Case law has also found that an employee on parental leave is entitled to at least a portion of bonuses considered remuneration for work done in the current year relative to their time at work.

Do I need to be in an employment relationship when the bonus is paid?

Performance bonus systems often include a clause stating that the employee must be in an active employment relationship with the employer when the bonus is paid. Case law has found such clauses to be valid. However, the employer is responsible for making the clause clear and making all employees aware of it.

In a decision by the Helsinki Administrative Court, an employee had been in an employment relationship during the performance bonus period, but their employment relationship had ended before the bonus was paid. According to the terms unilaterally set out by the employer, the payment of the performance bonus required the employee to be employed by the employer at the time of payment, among other things.

The court found that the employer should have made the employee aware of the clause regarding the time of payment when concluding the employment contract. Because the employer had neglected to do so, the clause was deemed unreasonable. Therefore, the employee was entitled to the performance bonus.

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