Can your employer refuse to pay your bonus? A recent Dutch Court decision explained

Employment contracts or bonus schemes often state that it is up to the employer to decide whether an employee is entitled to a bonus. This is commonly referred to as a discretionary power. In practice, entitlement to a bonus can give rise to disputes. The key questions that may arise are: how far does this discretionary power extend? And what happens if an employee has received a bonus every year for a long period of time and suddenly no longer receives one?

This latter question was addressed in a recent ruling of the District Court of Midden-Nederland. I will explain this judgment below. It shows that an employer’s discretionary power to award a bonus is not unlimited.

The bonus scheme

The case concerned an employee who had been employed by the same employer since 1999 and who held the position of Head of Sales. During the 26 years of his employment, he had received a bonus every single year. For the year 2025, however, the employer decided not to pay a bonus.

According to the employer, no bonus was due because no new bonus scheme had been agreed for 2025 and no new performance targets had been set. The employer argued that, for this reason, there was no obligation to pay any bonus.

The court did not agree. During the proceedings, it became clear that it was common practice within the company that, if no new bonus scheme was agreed, the bonus scheme from the previous year would continue to apply. The court therefore held that the employee was entitled to assume that the bonus scheme for 2024 remained applicable to 2025.

Discretionary power

The employer then argued that it could rely on the discretionary clause included in the 2024 bonus scheme. That clause stated that “bonus and commissions are paid at the discretion of line management and Squared Directors.” According to the employer, this meant that it was free to decide to not pay any bonus at all.

Again, the court disagreed. It held that an employer’s discretionary power is not unlimited. Such discretion is subject to, among other things, the principle of good employership. The court noted that the bonus scheme itself did not contain clear criteria explaining when a bonus could be reduced or withheld. The employer also failed to explain which objective criteria it applied when deciding not to pay a bonus.

The employer merely stated that the company was experiencing financial difficulties and that no bonuses had been paid to members of the management team for 2025. Even if that were correct, the court held that this alone does not justify withholding the bonus from the employee. According to the court, acting in this way was contrary to the principle of good employership.

Conclusion

Although discretionary clauses in bonus schemes are common, both employers and employees should remain alert. The power to decide not to award a bonus is not without limits. Even where a bonus is formally subject to the employer’s discretion, the employer may still be obliged to pay it under certain circumstances.

Employees are therefore well advised to discuss clear and objective criteria for determining a bonus before signing an employment contract. These criteria may prove crucial if a bonus is later withheld and can help prevent disputes and legal proceedings.

For further assistance or to discuss your specific situation, please do not hesitate to contact our team at GMW lawyers.

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