clawbackThe company I worked for paid me quarterly bonuses for performance but the bonuses are based on the final performance of the entire team for the whole year. The final calculation determines whether you get even more bonus or give some back. The calculation was done after I left. I thought that I would be due more bonus but they claim I owe a refund. The bonus is $6,000; not a lot for them, but for me it is. HR sent a letter asking for it. I reviewed the policy. There is no clawback clause and nothing was signed. I don’t know of any other case where they took back bonus money from an employee who left. What do you think?

Nick’s Reply

I’m not a lawyer and cannot give you legal advice, so I advise that you talk with an attorney. It will likely be worth the few hundred bucks it will cost. All I will offer are some observations and opinions.

Avoid clawbacks to begin with

I don’t like any kind of compensation or bonus plan with clawback provisions. A clawback is when an employer pays you money, then wants some or all of it back. Use of the word “claw” says it all.

Clawbacks are contractual provisions. That means you agreed to it, usually in writing. Unless it’s an executive position, I advise people never to sign or agree to such deals. A clawback is usually a penalty, and that’s no way to establish a good working relationship. Because most people don’t have employment contracts to begin with, and your company already paid you the money, I think they are at the disadvantage — but it depends on the details.

What was the clawback agreement?

I also think there is an important distinction between the company re-balancing the bonus at the end of each year as you described, and paying a bonus and attempting to claw it back after an employee is long gone. The time to establish such a claim is in the exit meeting. (I discuss that further below.)

Review what you and the company agreed to upon hire and upon separation from employment.

  • Did you sign anything agreeing to this as part of your compensation and bonus plan?
  • Did the company notify you there would be a clawback on your departure?
  • Upon your departure did you sign any exit documents at all that might apply to this? Go back and read them carefully.
  • Now that you’re gone, how are they going to come after you if you don’t pay the bonus back?
  • Would they take legal action to collect $6,000? How much would that cost them?
  • What happens if you just ignore the demand and let them go suck rocks?

If you agreed to this in advance, I’m not suggesting that you stiff them just because you might get away with it. But it seems when you departed you honestly believed the slate was clean and your account zeroed out, because no one told you otherwise.

Parting terms

To avoid this and other problems when exiting a company, see Parting Company | How to leave your job. This PDF book includes a bonus mp3.
As I said earlier, the time for an employer to establish a clawback claim is in the exit meeting. I think the reasonable expectation is that all liabilities (on both sides) are settled upon your exit. A good HR department will make the terms of your parting clear, usually in writing, and ask you to confirm your understanding with your signature.

HR will reconcile all accounts just before an employee leaves, not after the fact. For example, they’ll take back the computer, keys, credit cards and other assets they issued to you. And they’ll give you a statement about what they owe you (e.g., an outstanding paycheck or expense reimbursement) and what you owe them.

What claim does the company have on that bonus now that you’re gone? That’s what a lawyer will help you determine based on the facts of your unique situation.

These are my observations and opinions based on what I’ve seen over many years. What you do is up to you, of course. A good lawyer can explain your legal options once you share all the details.

Have you ever lost money to a clawback provision? What happened? Does your employment include a clawback? What’s it for? What could an employer give you that would be worth you signing a clawback agreement? Are clawbacks even fair, or a smart tool for anybody?

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  1. Agree 100% with Nick–spend the few hundred to have an employment attorney in your state review any and all employment agreements (things such as ‘restrictive covenants’ which are usually winged at you when you accept) and all correspondence (mail and email) between you and HR at the time of departure. I hope our questioner PDF’d all documents and sent to his private account, along with printing them out. For him, I’m thinking a letter from an attorney would clarify the matter if there’s no clawback agreed to.

    It does sound unusual trying to claw back an bonus but in some companies, they don’t care if it costs them more to do so, that’s what they like to do.

    Re returning things like computers and ID, this straightforward procedure has become less so as everyone went remote/WFH. When I was laid off from my last company due to being on the losing side of an acquisition and eventual elimination of the entire function, I had to BEG them repeatedly to send the boxes so I could send back the laptop, phone and ID. My HR contact was also let go and I was bounced around to various IT departments. Three months later, I got the box. Not just me either. The irony was that they really didn’t want the laptops–the acquirer uses Dells and we had HPs!

  2. “A good lawyer can explain your legal options once you share all the details”. For once, I agree with something the editor of this site says. A good attorney is absolutely essential today!
    Taking back a bonus you earned? No difference than taking back wages you earned. That’s immoral, unethical, and I’d question its legality. So what if you quit. It’s the Draconian “at will employment” that employers have fought so hard to preserve, and it goes both ways, employers!
    I’ve become friendly with a family in my church, and have enjoyed great ethnic food (Romanian) and fellowship in their home. The father has practiced Employment Law for over 25 years. His free legal advice has proven invaluable. We’ve had lengthy discussions on at will employment vs just cause, and non-compete agreements. Both of us have disdain for at will employment and NCAs. He’s seen every dirty trick employers can pull, and he’s won case after case as most employers talk a good game, but many are inept, and stand down once he steps up to the plate.
    I’m a firm believer now late in life in using the legal system for what it’s meant to be used for. I once hired an attorney to take on the state of Kansas. Just receiving a letter from said attorney resulted in Kansas backing down. Come to find out, Kansas had made a gross negligent error on their part as well.
    This guy clearly needs to retain legal counsel. I’m not talking about frivolous EEOC baloney legal action, but truly egregious conduct as seen here. This guy earned his money, and it’s not to line the pockets of some manager or CEO type either just because he’s resigning, or they want to “take the money back”. If more workers pursued legal and “lawful” options, it might be a message to Shylock employers to stand down and watch their backs.

  3. Yeah, get a labor lawyer. worth the $.
    the writer said nothing stated in the policy, nor was anything signed.

    Without anything backing up their “right” for this clawback, it’s not much different than if a former employee bills them for the money the company owes the employee for the raise in pay earned but withheld

    • For $6,000, I wouldn’t roll over and let a former employer off the hook either (as will appear in the majority commentary I’d bet). As you point out, nothing stated or signed. If it’s anything like the mostly mom & pop shops I’ve worked for over many years now, it’s “he said, she said”. That doesn’t hold up in court. If they owe him 6 gs, then go after these clowns, legally, and get your scratch.

  4. Here’s one way to look at it:

    What are the chances that HR would’ve reached out to you, as a departed employee, with a $6,000 *payment*, if the company did better than anticipated.

    Zero, as everyone, including small children and smart dogs would know.

    So, basically – ignore them. Sounds like whatever caused you to pull the ripcord and exit was foundational, if that’s they’re behavior.

  5. This is an interesting post and I’m curious to see how it turns out.
    It is not uncommon for companies to cancel bonus payments, promised by contract after an employee leaves. However, I have never seen a post employment claw-back of bonus money already paid. Something to watch out for when joining a company.

  6. It does sound as though your former employer is overplaying its hand. A competent attorney should be able to sort this out for you.

    The only similar thing I have witnessed was an employer warning that there would be an “ethical obligation” to reimburse moving expenses should I leave before my first year was out. They, however, apparently had no ethical obligation to honor the verbal terms of their offer. I ultimately left just over a year after starting, so the point became moot. As has happened to others on this thread, though, they did withhold my bonus, piously insisting that it wholly a retention incentive.

  7. I don’t know if I’d immediately call a lawyer about this. Why spend money if you don’t need to?

    Here’s what I’d do:

    1) If it was a just a letter, maybe they’re just fishing to see what they can get and have no real intent on pursuing it. Costs just a stamp to send it. I’d ignore it. After no response, maybe the employer drops it because they know going to court over $6k is probably not going to really net anything.

    2) If they send it via certified/registered email, threaten collections, or have an attorney send it, *then* get a lawyer involved.

    Of course, peace of mind can be priceless. If something like this would keep you up at night, spend the money to have an attorney let you know if you should ignore it and just get a good night’s sleep.

    • I totally agree with Chris. In fact, I was in a similar situation several years back. The amount was around $2k. Months after I left, I received a letter (not certified / registered mail) in which the company requested a pay back of some of my bonus money from the prior year. As this was many years ago, I forget the reasons stated in the letter.

      I knew I had not signed any paperwork regarding bonuses, so I ignored it. I never heard anything else from the company. Thankfully they had already paid me for unused vacation time or they might have attempted to deduct the funds from that check!

      If, however, they had sent a follow-up letter that was certified / registered, I would have sought out the services of an attorney, just as Chris suggests.

  8. I’d consult an employment attorney in your state. Sometimes these things get buried in the fine print, and it would be worth the few hundred dollars to have a licensed attorney with experience in employment law go over any contracts, documents, policies, etc.

    Sometimes, if it isn’t complex, won’t require a great deal of time and research, the attorney may give you the consultation for free, although if follow ups are required, then you’ll likely be charged. At least this is what a good friend of mine, an employment attorney, does, if the problem is easy and won’t eat up a lot of his time.

    It would be worth it for your peace of mind. It is possible that if you ignore it, your former employer won’t bother to sue you for the $6K (it might cost them more to sue you than they’d get back from you), but you don’t know that either. An employment attorney in your area might be able to tell you whether your former employer has sued others in similar situations (and whether the employer won or not).

  9. I went into medicine because I thought I could be independent of things like this. And maybe that was true a generation ago. Look at this, not from some fly-by-night boiler room operation but a major medical center.