Bonus and Equity Dispute at Dismissal

A common situation during reorganizations

During a reorganization or dismissal, disputes about variable compensation arise frequently. Your employer claims you have no right to your bonus, that your RSUs or options lapse, or that your equity plan ends upon departure. In many cases, this is not as straightforward as the employer suggests.

Dutch employment law includes the principle of good employment practices (goed werkgeverschap, Article 7:611 of the Civil Code). This means an employer cannot simply refuse variable compensation when the dismissal was initiated by the employer. If you were unable to meet your bonus targets because the employer removed you from your position during a reorganization or restricted your activities, the employer cannot reasonably refuse the bonus.

For equity, RSUs and options, additional questions arise: which plan rules apply, what are the vesting conditions, and is there a good leaver arrangement? When dismissed during a reorganization — where the initiative comes from the employer — you typically qualify as a good leaver, which brings more favorable terms than voluntary departure.

The value of your variable compensation can be substantial — sometimes more than the transition payment itself. It is therefore essential to carefully assess these entitlements and include them in the settlement agreement negotiation.

Common disputes

Employer refuses pro rata bonus for the current year
Targets not achievable due to the reorganization
Unvested RSUs or stock options at risk of forfeiture
Accelerated vesting as part of departure arrangement
Sign-on bonus with clawback provision
Retention bonus not paid despite commitment
Discretionary bonus unilaterally set to zero
Final discharge clause threatening to void bonus claims

Your rights with different types of variable compensation

Performance bonus

If your bonus is linked to individual or company targets and you have fully or partially met them, you are in principle entitled to a pro rata payment. This certainly applies when you were unable to fully meet targets due to the reorganization. Some bonus arrangements require employment on the payment date — courts have ruled that such clauses do not always hold when the dismissal was initiated by the employer.

RSUs and stock options

RSUs vest according to a schedule on set dates. Upon dismissal, unvested RSUs often forfeit under the plan rules. However, you can negotiate accelerated vesting or financial compensation for the loss. For stock options, the exercise period is typically shortened upon dismissal. In the settlement agreement, you can arrange for the exercise period to be extended.

Discretionary bonus

For a discretionary bonus, the employer has in principle freedom to determine whether and how much bonus is awarded. But if there is a pattern of annual awards — a so-called consistent practice — an expectation right (verworven recht) may have arisen. Unilaterally setting the bonus to zero upon departure is then not automatically permitted. The employer must reasonably justify not awarding it.

Sign-on and retention bonus

When the dismissal is on the employer's initiative, requiring repayment of a sign-on bonus is often not reasonable. Courts assess whether the clawback clause is clearly formulated and whether it is fair to apply it during a reorganization. A retention bonus not paid while you wanted to stay can also be disputed — the employer ended the employment while the bonus was intended to keep you on board.

Bonus and equity in the settlement agreement

Why address this separately?

It is essential that bonus and equity issues are explicitly addressed in the settlement agreement. If the VSO contains a broad final discharge clause and the bonus or equity is not separately included, you risk losing your entitlements.

The following points must be covered:

Pro rata bonus for the current year: amount and payment date
Payment of previously committed but unpaid bonuses
Confirmation of your good leaver status for equity plans
Accelerated vesting or compensation for unvested RSUs
Extension of the exercise period for stock options
Lapse of any clawback clauses
Exclusion of bonus and equity entitlements from the final discharge

How bonus affects the transition payment

The transition payment is calculated on the gross monthly salary, including variable salary components. Bonuses and commissions are counted based on the average over the last three years. This means high bonuses in the preceding years can increase your transition payment.

Employers sometimes calculate the transition payment too low by excluding variable components. Check that the calculation is correctly performed and includes all relevant salary components: base salary, holiday allowance, fixed year-end bonus and the average of variable compensation.

Practical steps

As soon as you learn you are being dismissed during a reorganization, gather the following documentation:

Your bonus arrangement or bonus letter
The equity plan rules
Vesting overviews of your RSUs or options
Overviews of previously received bonuses (past three years)
Any commitments or communications about future bonuses

These documents are essential for substantiating your claim and for the correct calculation of the transition payment.

How ReorgLegal helps

ReorgLegal analyzes your employment contract, bonus arrangement, equity plan and any international plan conditions. Based on this, we determine your legal position and the room for negotiation.

The bonus or equity issue is included in the overall negotiation of your departure arrangement. Sometimes it is more effective to factor the value of lost equity or bonus into the severance payment, rather than conducting a separate discussion. In other cases, it is better to address the entitlements separately.

We advise you on the most effective strategy in your specific situation and, if desired, conduct the negotiation on your behalf.

Watch for deadlines

Stock options often have short exercise periods after the end of employment. If you miss this deadline, the right to exercise the options lapses. Have an extension of this period documented in the settlement agreement.

International plan

If your equity plan is governed by foreign law — for example US law — we assess whether Dutch employment law provides additional protection. The principle of good employment practices and the test of reasonableness and fairness apply regardless of the law governing the equity plan.

Tax aspects

The tax treatment of variable compensation upon dismissal requires attention. RSUs are taxed at vesting. Stock options are taxed at exercise. If you have the 30% ruling, it may be advantageous to have vesting occur while the ruling is still in effect. When leaving the Netherlands, specific rules apply for the allocation of taxing rights over equity income. We recommend consulting a specialized tax advisor for complex tax situations.

In most cases, legal costs are covered by the employer as part of the settlement agreement. Contact ReorgLegal for an initial assessment — we respond within 1 hour on business days.

Dispute about bonus or equity upon departure