Employees Do Not (Necessarily) Have a Vested Right to a Bonus, Even If They Received One for Years

The COVID-19 crisis has thrown many employers into economic difficulties. In these uncertain times, many employers are asking themselves if they are obligated to pay their employees bonuses.

Just before the end of 2020, the Tel Aviv Regional Labor Court issued a new ruling on this very subject. Although an appeal is pending, we wish to shed some light on the court’s thinking on this important issue, especially since many employers pay annual bonuses to their employees during the first quarter of the following year.

In this specific case, a large international corporation encountered financial difficulties and began implementing economic recovery measures. One such measure included the decision not to pay employees an annual bonus, despite the company’s decades-long practice of paying employees an annual bonus at varying sums. However, the corporation never put the entitlement to an annual bonus in writing.

According to the ruling, if an explicit written agreement does not exist stipulating the entitlement to a bonus and the criteria for entitlement, an employee does not have a vested right to receive a bonus. Instead, the employer has discretion to decide when and if it will grant a bonus to an employee as part of its managerial prerogative.

The Labor Court also rejected the claim that the employees receiving bonuses as a customary practice for decades entitled them to continue receiving bonuses in the future, as customary-practice claims require proof and are not readily entertained by the court.

In light of the complexity of this matter, and in light of the wide exposure involved in the decision to pay all employees bonuses, we recommend consulting with us if you have any questions in this regard.

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If you would like to discuss the above or require further information, we would be happy to assist you. Please feel free to contact a member of our Employment team. For more information, please Click here