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Can an employer reclaim a signing bonus already paid and taxed as income?

signing bonus repaymentAn employee receives a signing bonus to join a firm. The bonus is paid and taxed as w-2 income. The agreement states that the employee return the bonus should he "leave the firm before the end of 5 years". Except in case of death or disability then it's the prorated amount. In year 3 the employer terminates the employee without cause. The agreement is silent on all other issues. The employee refuses to return the bonus and the employer files suit to reclaim the bonus. ( NY State law applies). Can the employer legally claw back a bonus already paid and taxed as income?


Topic Expert
Edward Abbati
Title: Vice President of Finance
Company: Location Labs
LinkedIn Profile
(Vice President of Finance, Location Labs) |

I would recommend talking to an attorney.

(Fiscal Officer) |

Since the agreement did not qualifying " leaving " the firm, it could be decided either way; therefore I agree with Mr. Abbati, speak to an attorney.

Ted Monohon
Title: VP -Finance / Controller
Company: Fantex
(VP -Finance / Controller, Fantex) |

I am no legal expert, but I think the interpretation here would be voluntarily leaving. It would be inequitable to incentivize someone with a signing bonus and commit them to 5 years and then fire the person and recoup the payment. That said, if the dismissal was for good cause, then the recoupment would be justified. Seek a lawyer and revise any other agreements like this to clear up any ambiguity. Good luck

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

Yes, you absolutely need an attorney to draft the return language and get it agreed. Otherwise you will be dealing with potentially years of distracting disputes.

David Ziska
Title: CEO
Company: Council Business Solutions
(CEO, Council Business Solutions) |

I would not pay lawyers to chase $$ that you may or may not get. Consider the signing bonus payments as the cost of learning something. Do clarify the intent of the signing bonus language (via legal or otherwise).

That aside, the payment structure makes the "signing bonus" look more like regular compensation, i.e. you have to be employed over time to receive it. If you are going to have a signing bonus, pay the bonus at signing and be done with it. If you want to pay the hire a higher wage, then do that.

Topic Expert
Lee Andrews
Title: P/T CFO, Business Consultant
Company: Pacific Bag, Inc./Other Clients
(P/T CFO, Business Consultant, Pacific Bag, Inc./Other Clients) |

I'm with David Ziska. Sounds like an employment agreement drafting lesson that cost more than it should have. However -- if it was a ludicrous amount of money, the attorney option may be worth a shot. But for 40% of the remaining bonus of what, 3 or 6 months salary, it just can't be that important. Did this employee sign a non-compete/non-disclosure agreement? If you find out that any new employment for him/her contravenes that agreement, maybe you have some secondary leverage. And have an HR attorney or consulting service review all the standing employment agreement templates.

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

concur with comments and would add that one of the main reasons for sign-on is because the candidate is leaving "money on the table" to accept your position/offer; for the money to be "recouped" a reasonable retention period can be incorporated (generally speaking 5 years seems on the high end); depending on the circumstance a cost/benefit and probability of recouping should be conducted; the more punitive and unreasonable the terms the less likely you will get your funds back; I'm not attorney either yet have dealt with many employee relations issues pertaining to compensation litigation.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

There is a tremendous amount of guesswork here, as the question did not give enough information. We don't have the contract. The author assumes its "silent" on other issues, it may not be - we don't know.

We don't have the definition of what "cause" and "without cause" is.

We haven't done the research on NYS Tort as it applies to the 5 years.

There are other very good questions asked by the other commenter that I won't duplicate.

What we do know:

a) that someone needs a good Attorney
b) that someone needed a good Attorney before signing the contract.
c) that someone may have a malpractice suit against the attorney that represented them
d) if that someone was the signer, then that attorney has a fool for a client :)

(Agent, JKS Solutions, Inc.) |

I'm not a contracts expert. The downside occurs when the employee "leaves the firm," before 5 years.

"Leaving the firm" might include termination with or without cause and obviously includes death.

You need them to specify in writing what "leaves the firm" means specifically so you have no questions. Have them remove the part about making your widow repay because that is simply morbid and lacking in humanity.


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