Bonus Dispute During Dismissal

Your bonus rights upon departure

During a reorganization or dismissal, disputes about bonus payments are common. Employers frequently take the position that a departing employee has no right to a (pro rata) bonus. This is not always the case.

Your right to a bonus depends on several factors: the type of bonus arrangement, what is stipulated in your employment contract, the bonus conditions and the circumstances of the dismissal. When the dismissal is initiated by the employer — as in a reorganization — it may be unreasonable under Dutch law to refuse an accrued bonus entirely.

Under Article 7:611 of the Dutch Civil Code, the employer is obligated to act as a good employer (goed werkgeverschap). This principle plays a crucial role in bonus disputes. If you were unable to meet your bonus targets due to the employer's actions — such as a reorganization — the employer cannot refuse the bonus without further justification.

There is an important distinction between different types of bonuses. Each type has its own legal framework, but the principle of good employment practices can play a role in all bonus arrangements. Below we explain the different types and what applies when you are dismissed.

Common bonus disputes during reorganizations

Employer refuses pro rata bonus for the current year
Targets not met due to the reorganization itself
Discretionary bonus unilaterally set to zero
Bonus arrangement contains a departure clause
Sign-on bonus with clawback provision
Retention bonus not paid despite commitment
Bonus not addressed in settlement agreement
Final discharge clause threatens to void bonus

Types of bonus arrangements

The type of bonus arrangement largely determines your legal position. Below you will find the most common bonus types and what applies when you are dismissed during a reorganization.

Performance bonus

A bonus linked to individual targets or company results. If you have met your targets, or if you were unable to meet them due to the employer's actions or the reorganization, a claim to (pro rata) payment may exist. The employer cannot reasonably refuse a bonus if they themselves created the circumstances that made the targets unachievable.

Discretionary bonus

A bonus where the award is at the employer's discretion. Even here, good employment practices apply. If there is a pattern of annual awards, an expectation right (verworven recht) may have arisen. Courts examine whether there is a consistent practice: if the bonus was consistently awarded in previous years, a claim to continuation of the bonus may arise under certain circumstances.

Sign-on bonus

A bonus received upon joining the company, often with a clawback clause if you leave within a certain period. When the dismissal is on the employer's initiative — such as during a reorganization — requiring repayment may be deemed unreasonable under the circumstances. Courts assess whether the clawback clause is clearly formulated and whether it is fair to apply it in the given circumstances.

Retention bonus

A bonus designed to retain you during a reorganization, merger or acquisition. If you are dismissed despite the retention bonus, it can be argued that the bonus is still owed. The employer ended the employment relationship while the bonus was specifically intended to keep you on board.

Pro rata bonus and the transition payment

Pro rata bonus upon dismissal

When dismissed mid-year, a claim to a pro rata bonus for the period you were employed may exist under certain circumstances. This can apply to both fixed and variable bonuses accrued during the employment. The calculation is typically the number of days worked divided by 365, multiplied by the annual bonus amount.

Some bonus arrangements contain a clause requiring the employee to be employed on the payment date to qualify for the bonus. Dutch courts have ruled in various cases that such a clause may be set aside under certain circumstances, particularly when the dismissal was initiated by the employer. Courts may consider the extent to which the bonus was effectively accrued during the employment.

Bonus in the transition payment calculation

The transition payment is calculated on the gross monthly salary. Structural variable salary components, including certain bonuses, may be included in the calculation based on the average over the last three years. This means that a high bonus in the preceding years can increase the amount of your transition payment.

It is therefore important not to base the transition payment calculation solely on your base salary, but also to include holiday allowance, fixed year-end bonus and the average of variable bonuses over the past three years. In practice, disputes frequently arise over which salary components should be included in the calculation.

13th month and year-end bonus

A 13th month or year-end bonus is not legally mandatory, but if it is included in your employment contract or collective labor agreement, a claim to (pro rata) payment may exist, depending on the applicable arrangement. The 13th month is counted as a fixed salary component in the transition payment calculation.

Clawback provisions

When is a clawback clause valid?

Clawback clauses on bonuses are more likely to be enforceable when they are clearly and specifically formulated. Vague or unclear clauses may be set aside by courts. The clause must specifically state under which circumstances repayment is required, what amount is involved and how the repayment is calculated.

When the dismissal is on the employer's initiative — as during a reorganization — requiring repayment of a bonus is in many cases not reasonable. Courts assess whether application of the clawback clause is acceptable according to standards of reasonableness and fairness. This applies to sign-on bonuses as well as training cost reimbursements with repayment obligations. During a reorganization, the position that the employee must repay a bonus while the dismissal was not their initiative is legally disputable.

Bonus in the settlement agreement

It is essential that the bonus issue is explicitly addressed in the settlement agreement. If the VSO contains a broad final discharge clause and the bonus is not separately included, you risk losing your bonus entitlement. Ensure the following points are addressed:

Pro rata bonus for the current year
Payment of previously committed bonuses
Lapse of any clawback clauses
Exclusion of bonus claims from the final discharge
Transition payment calculation including variable salary components

Commission and profit sharing

In addition to regular bonuses, some employees earn commission or participate in a profit-sharing arrangement. These variable compensation components are treated the same way as bonuses upon dismissal: a claim to a pro rata payment for the period you were employed may exist. The average commission or profit share over the past three years is also counted in the transition payment calculation.

During a reorganization, your commercial activities may be restricted in the run-up to dismissal, causing your commission income to decline. In that case, it can be argued that the employer owes compensation for the lost commission income.