Shanghai court allows employer to cancel deferred bonus


The Shanghai First Intermediate People’s Court ruled that an employer could cancel an announced but unpaid deferred bonus of RMB1.2 million to a senior fund manager because the bonus was not fixed compensation and was subject to conditions in the company’s bonus policy and a special agreement with the employee.

The employee joined the company in 2007 and became the company’s general manager in 2011. Later, the employee also became the company’s legal representative and head of the compensation committee.

In 2015, after approval by the employee, the company issued its compensation plan for 2015 to 2017. According to the plan, for mid-level managers and above, 70% of their performance bonus would be paid in the year of performance, and the remaining 30% would be paid in the next year as a deferred bonus. If the employee were to leave the company during the performance period, the employee would voluntarily relinquish the bonus for the current performance period and would be ineligible for the deferred bonus for the previous performance period.

This compensation plan language was similar to performance bonus language contained in a job position agreement signed between the employee and the company in 2014. That agreement also contained clauses stating that the company had explained the meaning of the agreement’s terms to the employee and that the employee had understood all the terms. The agreement was effective through 10 October 2017.

On 28 April 2017, the employee resigned. The company refused to pay the RMB1.2 million deferred bonus for 2016. The employee filed a labour arbitration claim to recover the deferred bonus. The case eventually escalated to Shanghai’s First Intermediate People’s Court.

The court rejected the employee’s claim for the deferred bonus by reasoning that the performance bonus was not fixed compensation and was subject to the company’s bonus policy and special agreement with the employee.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at subscripton ad red 2022