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socrateaser, Lawyer
Category: California Employment Law
Satisfied Customers: 39164
Experience:  Retired (mostly)
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I recently resigned. Three years ago the company converted their bonus program to a "

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I recently resigned. Three years ago the company converted their bonus program to a "retention award." The reward was paid out in cash upfront (as in the past) however, it was earned over the next 36 months. They required a contract be signed each year prior to paying the bonus. So when I resigned, I basically owed one-third of my 2009 bonus, two-thirds of my 2010 bonus and nearly my entire 2011 bonus. I have just received my "bill" in the mail. Are there any laws that protect me as a California employee to avoid payment? Any experience with how aggressive companies are with chasing the money? It's not six figures but a meaningful amount to me. Thank you.
Submitted: 6 years ago.
Category: California Employment Law
Expert:  socrateaser replied 6 years ago.
“It shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee.” Labor Code § 221. Wages are defined broadly to include “all amounts for labor performed ... ” This definition makes it clear that the statute prevents an employer from taking back wages earned and paid (as opposed to overpayments of wages not earned). See Harris v. Investor's Business Daily, Inc. (2006) 138 CA4th 28, 40.

However, there is no prohibition against an employer recovering advances (payments not yet earned by the employee's full performance of the contract). Steinhebel v. Los Angeles Times Communications (2005) 126 CA4th 696, 705.

Based upon your stated facts, you could be on the hook for the advances against the retention bonus. The way out may be to prove that the contract is a restrictive covenant not to compete, in violation of Bus. & Prof. Code 16600, on the theory that if the employer can't prohibit an employee from competing after termination by any direct means, it may be able to do so, by making the cost of quiting employment so great that the employee cannot reasonably do so -- or, by creating an effective damage award against the employee created such that the employer can recover for the employee's resignation, and ultimate competition with the employer.

There's no case law on this issue -- I'm trying to give you a legal argument that you could use as a defense to a lawsuit.

Re the odds of being sued -- it's all about the employer. There's no way for me to analyze the risk, especially as your particular employment relationship is atypical/rare.

Hope this helps.

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