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  • To Pay or not to Pay, the Bonus to the Ex-employee

    To Pay or not to Pay, the Bonus to the Ex-employee

    Mr. Zhao, an employee of a Yangzhou company, submitted the resignation at the end of the year. While calculating the rest salary, he found that the year-end bonus was missing, so he asked the company to pay this bonus. However, the company put forward the “Employee Handbook”, which provided that the year-end bonus would be paid in each March, and to the employees in service at that time. Then Mr. Zhao submitted the dispute to the labor arbitration committee, finally, the committee required the company to convert the year-end bonus based on the actual working hours of Mr. Zhao, and pay the amount to Mr. Zhao.

    In practice, many companies would prescribe that only the employees in service could obtain the bonuses, in the labor contract or internal rules and regulations. Then the follow up disputes related to such bonuses for the ex-employees would arise. However, upon the analysis of the numerous rulings by arbitration committee and decisions by courts, we find that the results on whether the employer shall pay such bonuses are different in the individual cases.

    The fundamental reason is that neither the laws and regulations, nor the majority of local labor regulations have stipulated the relevant provisions on such bonuses. (Exception: “Regulations of the Shenzhen Municipality on the Wage Payment to Employees” clearly defines that the year-end bonus shall be calculated and paid according to the actual working hours). “Opinions on Several Problems of Implementing Labor Law” prescribes that the wage means the labor remuneration paid directly to employees in cash by employing units, according to concerned regulations or the labor contract, which includes ……bonuses……and others. In view of these, normally, the bonuses shall belong to the labor remuneration, which is part of the wage. However, if the companies set restrictions on the payment of the bonuses in the labor contract or internal rules and regulations, the efficiency of such restrictions would be totally different depends on whether the courts support that the wage shall not be deducted or delayed without reason according to the “Labor Law”, or the agreement on the bonuses has not violate the relevant laws and regulations. Under such circumstances, the content and rationality of the relevant regulations/agreements would greatly influence the judges’ judgments.

    Meanwhile, in practice, if there is no written regulations or agreements on the bonuses, but the employer has a custom to pay the year-end bonus (e.g. the 13th salary), it is uncertain whether the ex-employee could ask the employer to pay such bonus. Generally, if the employee fails to prove that the employer has such custom, and there is no restriction on the bonus, there would be little possibility for the employee to obtain the support from the committees or the courts.

    In addition, if the employers have clearly defined any bonus which does not belong to the scope of the wage as stipulated by the relevant laws, then the ex-employees could be excluded from the payment of such bonuses. Such bounses may include, the retention bonus (e.g. it says that the employees in service until the end of a year would obtain the bonus, which represents the expectation of the employer to encourage the employees to work hard in the future continuously), the bonuses paid by the employer based on the special reasons unrelated to the employee’s work, and so on.

    There is a special category of bonus, the performance bonus. The prevailing view (especially in the northern regions) considers that the performance bonus shall belong to the “wage”, because it would be decided based on many elements related to the employee’s work in the past period, such as the performance, the target completion and etc.. However, some courts (especially in the JIANGZHEHU regions which think highly of the agreement) would tend not to support the employee while the employer has defined the payment of such bonus clearly, such as, the KPI regulations have prescribed that the KPI would be only applied to the employee in service, and the bonus would be paid according to the KPI result. The reason for such tendency is that the courts presume that the rules of the bonus are well known to the employee, it is the employee who chooses to give up the opportunity to obtain such bonus.

    Therefore, the employers could apply 2 tips in the design of the year-end bonus. Firstly, it would be better for the employer to research its local regulations or judicial tendency; secondly, the employer may classify the bonuses in different categories, and set the reasonable condition for obtaining such bonuses, which can implement the business management needs of these employers flexibly.