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Much like Taylor Swift’s Bad Blood, bonus plans can sour an employer-employee relationship when an employee’s expectations are undercut by the plan’s fine print.
This was the case in Presidio, Inc. v. Feeny, a case decided in February 2024 by the Fourth District Court of Appeal of Florida, centering on whether the employer breached an employment contract by withholding an employee’s expected bonus, despite the employee’s department meeting its objectives.
Case Overview:
Employee’s compensation was governed by an annual Company Performance Plan. Employee’s department hit all its targets for 2018, so he anticipated an additional $68,250 beyond the $30,000 bonus he had already received. However, Employer withheld this additional amount, citing company-wide underperformance. Employee argued that Employer breached its contract by ignoring the Plan’s mandatory language that the payment would be paid out based on meeting objectives.
Employer argued that the Plan was discretionary and not a binding contract, citing to the Plan’s language that all bonus plans were discretionary and subject to change based on individual or corporate performance.
The circuit court ruled in Employee’s favor, determining the Plan was an enforceable contract, but Employer appealed. The appellate court reversed the circuit court’s decision, holding that the discretionary language in the Plan allowed the company to withhold Employee’s bonus based on overall company performance. The court emphasized that, while the Plan contained specific bonus calculations, it explicitly conditioned payments on both individual and corporate performance.
The court cited previous case law, noting that bonus plans often lack enforceable contractual obligations when they include clear discretionary language. Because Employer retained the right to alter or withhold bonuses based on company-wide outcomes by virtue of the Plan’s language, the court concluded the Plan did not guarantee payment simply for meeting individual objectives.
Case Takeaways:
Employers can avoid “bad blood” by making bonus plan terms as clear as possible with explicit discretionary language. Specifically, employers can take the following steps to mitigate potential disputes regarding bonus plans:
- Use Clear, Unambiguous Language: Define bonus eligibility, specify conditions under which bonuses may be withheld, and clarify that meeting individual objectives does not guarantee payment if broader company goals are unmet.
- Include Discretionary Language: If maintaining flexibility is essential, explicitly state that bonuses are discretionary.