Fired Before Your Bonus or Commission Vested: What California Law Says
You brought in the client. You closed the deal. You hit the target. And then, before the bonus or commission was paid, you were fired. The employer says you forfeited it because you were not employed on the payment date. California law does not always agree.
The timing is rarely a coincidence. An employee generates revenue, meets a performance milestone, or completes a project that triggers a bonus or commission — and is terminated before the payment date. The employer points to a contract provision or policy that conditions payment on continued employment at the time of payout. The employee walks away with nothing for the work they already performed.
California law treats wages — including commissions and certain bonuses — as property of the employee once they are earned. The question of when a commission or bonus is “earned” is not always answered by what the employer’s policy says. It is answered by the nature of the compensation and the work that generated it.
Commissions: when they are earned
Labor Code section 204.1 defines a commission as compensation paid for services rendered in the sale of the employer’s property or services, based proportionally on the amount or value of the sales. Commissions are wages under California law, and once earned, they must be paid.
The critical question is when a commission is “earned.” Under California law, a commission is generally earned when the employee has completed the performance required to generate it — typically, when the sale is made, the contract is signed, or the revenue is booked. A provision that conditions payment on the employee’s continued employment at a future date — after the sale has already occurred — may operate as an unlawful forfeiture of earned wages.
The distinction is between conditions on earning and conditions on payment. An employer may structure a commission plan so that the commission is not earned until a condition subsequent is met — for example, until the customer pays, or until a return period expires. These conditions relate to whether the sale was genuine and complete. But a condition that simply requires the employee to remain employed until an arbitrary payment date — after the sale is closed and the commission is otherwise earned — does not change when the commission was earned. It merely delays payment of wages that are already owed.
California courts have addressed this distinction, and the analysis is fact-specific. The key factors are: what did the employee do to generate the compensation? Was that work complete at the time of termination? Does the forfeiture provision operate as a penalty for leaving (or being terminated) rather than as a genuine condition on earning?
Bonuses: discretionary vs. earned
Bonuses occupy a more complex position. The analysis depends on whether the bonus is truly discretionary or whether it has been earned through the employee’s performance.
A truly discretionary bonus — one that the employer has no obligation to pay and that is not tied to specific performance criteria — may be withheld at the employer’s discretion, including upon termination. An employer that occasionally distributes year-end bonuses in varying amounts based on its own assessment of the company’s performance and the employee’s contribution is paying a discretionary bonus.
A non-discretionary bonus — one that is tied to specific, objective criteria (hitting a sales target, achieving a performance metric, completing a defined project) — is earned when the employee meets the criteria. Once earned, it is a wage, and the employer must pay it. A policy that forfeits a non-discretionary bonus upon termination after the criteria have been met may constitute an unlawful forfeiture of earned wages.
The label the employer uses does not control the analysis. An employer that calls a payment a “discretionary bonus” but ties it to specific metrics, communicates a formula for calculating it, and pays it consistently when the metrics are met has created a non-discretionary bonus — regardless of what the plan document calls it.
The timing problem
The most contentious cases involve terminations that are timed to avoid a payment obligation. The employee is fired in November, before the annual bonus is paid in December. The employee is terminated the week before a commission cycle closes. The employee is let go just before a retention bonus vests.
When the timing suggests that the termination was motivated, at least in part, by the employer’s desire to avoid paying the compensation, the employee may have a claim beyond the wage claim itself. A termination timed to deprive the employee of earned compensation can support a claim for breach of the implied covenant of good faith and fair dealing — the principle that neither party to a contract may do anything to deprive the other of the benefits of the agreement.
This doctrine does not convert at-will employment into employment for cause. But it does prohibit the employer from exercising its at-will termination right for the specific purpose of avoiding a contractual payment obligation. An employer that fires an employee the day before a commission vests, with no legitimate performance-based reason, may have breached the implied covenant.
What to do
An employee who has been terminated before a bonus or commission was paid should take several steps.
Review the compensation agreement. The employment agreement, offer letter, commission plan, or bonus policy governs the terms of the compensation. Identify when the compensation is defined as “earned,” what conditions apply, and whether a forfeiture-upon-termination provision exists. A provision that seems clear on its face may be unenforceable under California law if it operates to forfeit wages that have already been earned.
Calculate what is owed. Determine the amount of the bonus or commission based on the applicable formula and the work you performed before the termination. If the calculation depends on information the employer has not provided — final sales figures, revenue numbers, customer payments — note what is needed and request it.
Demand payment. Send a written demand to the employer for the unpaid compensation, identifying the amount owed, the basis for the claim, and the legal authority requiring payment. If the compensation constitutes wages, the employer’s failure to pay upon termination may trigger waiting time penalties under Labor Code section 203.
Consult with an attorney. Commission and bonus disputes can be factually and legally complex. The enforceability of forfeiture provisions, the distinction between earned and unearned compensation, and the application of the implied covenant of good faith all require case-specific analysis.
If you were terminated before a bonus or commission was paid — and if the work that generated the compensation was already complete — the employer may owe you the payment regardless of what the plan document says. California law protects earned wages from forfeiture, and a termination timed to avoid a payment obligation raises its own legal questions.
This article is general information about California law and is not legal advice. Every situation turns on its particular facts.