Legal Question in Business Law in California

Re: Receiving bonus or incentive earned when leaving company.i

Employee compensation arrangements are private contracts and in general are interpreted and enforced according to the terms agreed upon by the employer and employee. However, to protect employees from abusive handling of their earnings, the Labor Code imposes requirements on the way earnings are paid, particularly upon an involuntary termination.

Your situation is covered by Labor Code sections 200 and immediately following sections. Please note that the law often refers to "wages" when requiring immediate payment upon discharge or prompt payment upon resignation. "Wages" are defined to include hourly, piecework and commission-based pay. Court decisions have added many fringe benefits to the definition of wages.

With respect to bonuses, however, you need to go back to contract law. Some bonuses may be earned and accrued at the time of resignation or dismissal. These will generally be payable as a form of wages. An example would be where the employer makes regular contributions or transfers to a profit-sharing fund throughout the year.

However, in many cases, a bonus or other incentive compensation will NOT be accrued and payable until, for example, the employer makes a decision at year-end to do profit sharing. Or, the terms of the bonus or incentive program may require continued employment as a qualifying factor. Such provisions would ordinarily be enforced by a court or the labor commissioner.

So, you have to examine the terms of the employment agreement and decide whether you had accrued an interest in a fixed or determinable sum of money prior to departure, or whether the payment was unearned or contingent.