Recent New York Case Precedent Regarding an Employee’s Right to Bonus Payments Following Termination of Employment

By Ethan Krasnoo

Can an employer fire an employee shortly before the employee is due to collect a bonus and withhold the bonus payment?

In a ruling from May 2, 2025, a New York appellate court has held the employer cannot do so, because the withholding of an earned bonus would constitute a violation of public policy.  Specifically, the ruling came down from the Fourth Department of the New York Supreme Court Appellate Division in the case William Mattar, P.C. v. Riley.  In that case, the employee, an attorney, whose employment was terminated by the law firm where she worked, was contractually entitled to receive a bonus when she exceeded certain thresholds at her job, which was calculated based on the actual legal fees generated by her work.  However, the contractual arrangement conditioned the payment of the bonus upon her continued employment at the time that the fees on which the bonus was based actually cleared the firm’s operating account.  In that case, the employee was no longer with the firm at the time the fees were deposited and cleared the firm’s operating account, and as a result the employer withheld the bonus.

The court held that the withholding of the bonus constituted a violation of New York Labor Law provisions which restricts withholding of and deductions from wages, which include non-discretionary bonuses.  Findings of such violations of New York Labor law by a court come with added concerns for a company, as the law allows the court to also assign liquidated (penalty) damages equal to the amount withheld. But the New York appellate court in William Mattar also found that, to the extent that the law firm’s “Bonus Eligibility” agreement “restricted payments of bonuses to current employees, such provisions are void as against public policy.”  While the New York Court of Appeals had previously stated that compensation found to be wages that could be denied being paid by an employer based on timing would be void as against public policy under New York’s Labor Law, the Fourth Department’s application to actual facts in a case last week creates precedent of which companies with employees in New York should take note.  Companies should consider the ruling in establishing rules with respect to the currency of employment at the time that bonus or commission payments are to be made to an employee.  It should be noted however, that the ruling pertains to non-discretionary bonuses, where either an amount or calculation formula has been agreed to ahead of time, instead of a discretionary bonus.

This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon. For more information, please contact RPJ Partner Ethan Krasnoo who counsels clients in areas of complex commercial litigation, arbitration, mediation and dispute resolution, and employment, intellectual property, and entertainment and media. Mr. Krasnoo is admitted to practice law in New York, the United States District Courts for the Southern and Eastern Districts of New York, the United States Court of Appeals for the Second Circuit and United States Tax Court.