Bonus and full and final discharge in a settlement agreement

If your bonus is not expressly addressed, the wording of the settlement agreement determines whether you can still claim it after signing.

Is a bonus covered by full and final discharge?

Not always. A bonus may still be payable if the settlement agreement provides that salary and employment benefits continue until the termination date, or if the bonus had already been earned and was not clearly waived.

A broadly worded full and final discharge clause may instead prevent a later bonus claim. The bonus scheme, assessment period, termination date and provisions in the settlement agreement must therefore be read together.

Deal with the bonus separately

Specify the period to be settled, the applicable targets, who will perform the calculation and when payment will be made.

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Address the bonus before granting full and final discharge

A general provision stating that salary continues until the termination date is not always sufficient to prevent a dispute.

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Six points that determine a bonus claim

Check these points before the termination date and full and final discharge are agreed.

Bonus scheme

What do the employment contract, staff handbook and bonus terms provide?

Assessment period

Has the bonus already been earned, or is the assessment period still running?

Targets

Were the targets set objectively, and can the employer substantiate the assessment?

Pro-rata arrangement

Will the bonus be calculated pro rata if employment ends during the assessment period?

Payment date

Record the calculation, duty to provide information and final payment date precisely.

Full and final discharge

Expressly include the bonus, or clearly exclude the claim from the discharge.

Judgment of the Court of Appeal in ’s-Hertogenbosch

An employee covered by a bonus scheme entered into a settlement agreement after more than eighteen years of service. The employer subsequently argued that no bonus was payable because the targets had not been met and the bonus was not separately mentioned in the agreement.

How did the court interpret the arrangements?

The decisive question was how the bonus scheme and the settlement agreement should be read together. Full and final discharge does not automatically preclude a bonus claim where other provisions indicate that salary and bonus rights continue until the termination date.

Practical lesson
Never leave a bonus dependent on implied wording. Record the entitlement, calculation, conditions and payment date separately.