Workers in Connecticut, Vermont and New York get a bonus this year. An employment discrimination law bonus, that is. The Second Circuit recently ruled that the ADA applies to refusals and reversals of discretionary bonuses – just in time for the holidays.

What is a ‘discretionary bonus’ and how does the ADA apply?

Some, but not all, workers tend to look forward to this time of year for one reason and one reason alone – the discretionary bonus. This is the extra bit of income that workers receive at the discretion, or choice, of their employers at the end of the year.

The amount of a discretionary bonus can be in the thousands of dollars and can help employees finally get that vacation they’ve needed or serve as a nice bit of extra cash on hand to cover health care costs or emergencies. However, when a discretionary bonus is included as part of an employment package, the documents sealing the deal usually work to ensure that an employee need not expect the bonus every year. That’s because most documents highlight the fact that the bonus will be given at the “discretion” of the employer.

This means that an employer could withhold the bonus at any time for any reason – hence the reference to the income as a bonus. It’s usually associated with employee incentives or rewards for a job well done. However, a case which came to the courts recently brought the ADA into the picture. Read on.

What you Should Know about Davis v. New York City Department of Education

If you’ve ever wondered where the Second Circuit stands on discretionary bonus refusals or reversals in light of the ADA, now you have an answer. Because of the court’s October decision, when an employer refuses or reverses a discretionary bonus, it could constitute an adverse action for purposes of employment discrimination law.

The distinction is important. In Davis v. New York City Department of Education, a pro se plaintiff filed a charge with the EEOC alleging that her employer, a school answering to the NYC Dept. of Ed., had discriminated against her in violation of the ADA by reducing her discretionary bonus because she was disabled due to a temporary injury.

The Eastern District Court ruled in favor of the defendant granting summary judgment on the basis of the employee’s failure to state a prima facie case for employment discrimination under the ADA which requires an employer’s adverse action.

What makes refusing or reversing a discretionary bonus an ‘adverse action’?

In Davis, bonuses were awarded to employees based on the discretion of the Department of Education as to whether and how the awards would be given. In other words, the employer had the right to split the bonuses among employees, to vary the awards according to job title or even to award different bonuses to different employees.

This may lead some to question how limiting a discretionary bonus, which the employer had total authority over, could be considered adverse action. After all, the employer in Davis reserved this right in an official collective bargaining agreement which explicitly stated the terms of the release of its bonus every year.

However, the court saw things differently. The Second Circuit ruled that the Eastern District Court erred when it held that the reduction of the pro se plaintiff’s discretionary bonus was not a materially adverse action on the part of her employer.

The court reasoned that even though it was the defendant’s prerogative to decide whether and how bonuses should be distributed among its employees, it was not up to them to decided to do so on the basis of an employee’s disability or disabled condition – an ultra important distinction in terms of employment discrimination law.

According to Title VII of the 1964 Civil Rights Act, employers with 15 or more employees must check such egos at the door when it comes to certain protected categories of workers. These include race, color, national origin, age, sex, religion and disability, and the law covers all areas of employment, including hiring, firing, promotions and compensation.

Additionally, the Americans with Disabilities Act further protects workers with a qualified disability, whether temporary or permanent, from episodes of discrimination and retaliation involving adverse action from employers.

In effect, the Second Circuit court has officially dictated that the refusal, reduction, or reversal of discretionary bonuses could constitute employment discrimination under most anti-discrimination laws, thereby exposing employers who withhold bonuses adversely to possible litigation.

Effect on the Labor Sector

Such a decision should be of particular interest to workers in the financial industry which employs many workers in the Second Circuit’s authoritative territory.  Financial advisers, bankers and others within the financial industry receiving discretionary bonuses at the end of each year based on their earnings may have a case for discrimination if these are withheld based on disability or due to discrimination in any of the categories of Title VII.

Beyond the financial industry, presumably any employee working at a company with 15 or more employees could file a claim when discretionary bonuses are withheld or altered based on discriminatory decisions or in retaliation. Though the Second Circuit’s decision is not binding on other circuit courts, it could be considered persuasive authority in related cases.

Could discretionary bonus discrimination be happening to you?

It could be that discretionary bonus discrimination is happening to you or a co-worker you know. It’s important to keep in mind that the Second Circuit’s decision is applicable mainly in the areas of the Second Circuit territory – Vermont, Connecticut and New York. However, it’s also important to note that, with the Second Circuit’s decision, other federal courts may be inclined to follow its lead on this particular issue.

That means that filing a charge with the EEOC or pursuing a charge of discrimination concerning discretionary bonuses could become more commonplace nationwide based on the recent decision. At any rate, it’s always important to check with a reliable employment discrimination attorney when you feel your rights are being compromised concerning discretionary bonuses.