Recently the issue of money paid by an employer to a prospective employee pre-employment, in the form of a sign-on bonus, has come up in my law practice. For example, a recent client was given a $10,000.00 signing bonus but had to pay it back if he left the company within two (2) years. The gentleman wanted to leave the company prior to the two (2) year commitment, and wondered if he had any recourse to avoid paying back the bonus monies received.
A signing bonuses or sign-on bonus is incentive pay offered by an employer to encourage a new employee to join the employer’s workforce. A signing bonus is offered to incentivize a skilled employee to work for a company or to encourage the employee to stay with the company for an extended period of time. In the latter example, an employer will usually make a bonus offer based on the employee agreeing to remain with the employer for a set period of time.
A sign-on bonus occasionally comes with conditions attached. If the employee signs a repayment agreement stating that they agree to return all bonus monies if separated from employment before a certain date, that employee would likely have to return the money if they decide to leave before that date. The Court may consider the sign-on bonus and agreement a valid contract, and may enforce it against an employee who leaves early and does not return the money, considering the employee’s action to be a breach of the agreement. So, if an employee agrees to the terms when he took the job and the signing bonus, signed a repayment agreement, and then decided to take an action in violation of the contract, he would be expected to repay the incentive monies received. However, without a repayment agreement, the employee will not be expected to repay the signing bonus, regardless of when he separates from employment.
There are also options for an employee regarding signing bonuses. The first solution is not to accept any monies which arrive with a contingency or repayment requirement. Similarly, a signing bonus may not be the best option. For example, if you are offered a $4,000.00 signing bonus but are able to negotiate a $2,000.00 increase in your annual salary instead, you would come out ahead if you stayed longer than two (2) years, since the bonus is a one-time payment. Further, if you are unsure about a new position, the sign-on bonus could be staggered with payment of half at signing and half at the end of six (6) months or one (1) year. Another possible solution is to set aside the money during the applicable repayment time frame to make sure that the job works out.
Similarly, if you work for an employer for a portion of the time covered by the repayment period, you could ask the employer to waive the repayment agreement or accept a pro-rated amount. If the contract states that the total amount is due when you leave, then you would be required to repay the amount in one sum. However, all contracts can be changed by the parties who created them. An employer may be willing to rescind the contract or accept a smaller amount of money in accord and satisfaction for the full amount owed. Similarly, if the agreement is silent as to when you are required to pay back the bonus, you could make installment payments and still be in compliance with the agreement. However, if you stop making payments, your employer could have a claim against you for breach of contract. Also, an employee leaving to work for a new employer can ask the new employer to pay back the debt as part of your compensation package.
If you have a question about a potential sign-on bonus, contact us at / to discuss your legal rights.