Employee Retention Bonus Agreement

by Practical Law Labor & Employment

A Standard Document that private sector employers can use to offer an employee a retention bonus for remaining employed until a specified date. This short-form letter agreement, sometimes referred to as a stay bonus agreement, is designed to incentivize employees and ensure continuity of operations during periods of uncertainty, such as a corporate transaction, financial restructuring, or potential layoffs. This Standard Document outlines the general terms and conditions of a retention bonus, including the bonus amount, the retention period, and specific eligibility criteria that an employee must satisfy. It explores different options for the payment date, such as paying the bonus upfront or upon completion of the retention period, and addresses the legal and practical considerations of clawback provisions. Based on federal law and drafted in favor of the employer, this agreement also includes an acknowledgment of at-will employment and language to ensure compliance with Section 409A of the Internal Revenue Code.