Can Withholding a Discretionary Bonus Be an Adverse Action?

In many employment discrimination claims, it is necessary for the employee to prove that he or she has suffered an "adverse employment action." This term usually means an adverse or negative job action, including demotion, discipline, termination, reduction in salary, or changes in job assignments or shift schedules. In some special cases, adverse employment actions can be seen in more subtle ways, such as negative performance evaluations or exclusion from relevant training opportunities. But, what about a discretionary bonus? A recent case in the Second Circuit addressed this very issue.

Discretionary teacher bonuses

The Second Circuit Case, Davis v. New York City Dep't of Educ., involved claims of discrimination based primarily on lower-than expected bonuses. According to the suit, the teachers employed with the New York City Department of Education were under a collective bargaining agreement, established by the teacher's union. The school participated in a performance bonus program under which it received a lump sum for bonuses if students met certain achievement goals. The school was then permitted to distribute the bonuses to teachers as it saw fit. In other words, the bonuses teachers received were completely discretionary.

The health teacher's claim of discrimination

The plaintiff in this case, a health teacher, was injured in an auto accident, which resulted in her absence for about four months. When the annual teacher bonuses were awarded, she received less than half of the average bonus amount. In light of her strong performance reviews, she filed a charge of disability discrimination, alleging that she had been discriminated against based on her disability (i.e., the injuries she sustained during her auto accident). According to the school board, her bonus was reduced because of her extensive absence during that period. The bonus was shared with the substitute teacher who filled in during her absence.

The trial court found no actionable claim

The lower court found that her claim was not actionable because she had no legal entitlement to a bonus of any particular size. This decision was supported by the Seventh Circuit ruling that withholding a discretionary pay increase could not qualify as an adverse employment action. However, on appeal, the Second Circuit disagreed.

The Second Circuit's reasoning

The Second Circuit disagreed with the lower court, and the Seventh Circuit, as well. The Court reasoned as follows:

It seems unlikely, to say the least, that employers covered by the discrimination statutes could freely decide to award substantial discretionary bonuses to all employees except those of a disfavored race, religion, national origin or disability.

The Court also stated that since most employees work "at will," the majority of their conditions of employment could be said to be within the employer's discretion.

Bonuses cannot be categorically excluded

The Second Circuit, and other courts as well, have held that it is inappropriate to use a "categorical approach," to determine whether a particular action is an adverse employment action. The fact that an employer has "the right to allocate a bonus on any ground" does not mean that the employer has the right to allocate it "on a ground that did violate the law."

If you feel you have been the victim of discrimination, or if you have any questions regarding your employment rights, please contact the experienced employment attorneys at Wrady & Michel, LLC, either online or by calling us at (205) 265-1880.

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