Right to a performance bonus during family leave (TAS 301/2023, issued on 05 January 2024)
The Ombudsman for Equality was asked to evaluate the discriminatoriness of a financial undertaking's bonus scheme. The scheme leaves employees who take a longer family leave of more than six months without a performance bonus for the year in question. Thirty days of maternity leave are counted as equivalent to active employment in the scheme. The employees' family leave is not taken into account in other respects.
According to the Ombudsman for Equality, the company's performance bonus scheme must be considered discriminatory and thus in violation of mandatory law, as it completely excludes employees who take a longer family leave of more than six months from receiving a performance bonus for the year in question. Furthermore, only counting 30 days of maternity leave as equivalent to active employment must be considered to violate the Act on Equality between Women and Men (Equality Act). The entire maternity leave must be counted as equivalent to active employment.
The Ombudsman for Equality exhorted the employer to change its bonus scheme and pay the employee who reported the matter to the Ombudsman her share of the performance bonus for 2022, when she was on maternity and family leave. The Equality Act also entitles the employee who suffered discrimination to a monetary compensation from her employer for the violation of the prohibition of discrimination.
The Ombudsman for Equality has commented on various personnel fund and performance bonus schemes on several occasions and exhorted the employers to bring them into compliance with the Equality Act.
The Ombudsman for Equality’s statement TAS/301/2023 in Finnish is enclosed (PDF) in anonymised form.
The impact of family leave on performance bonuses
Questions asked from the Ombusman for Equality regarding employers' performance bonus schemes and the answers to them have been compiled on this page. They can be helpful for assessing the lawfulness of such schemes and the right of parents who have given birth or taken other family leave to them at the workplace, as well as in calculating these parents' lawful shares of such bonuses.
Legal provisions on pay discrimination
Section 8, subsection 1, paragraph 2 of the Act on Equality between Women and Men (Equality Act) prohibits the employer from acting in such a way that a person finds themselves in a less favourable position on the basis of pregnancy or childbirth or for some other gender-related reason when deciding on pay. Discrimination on the basis of "some other gender-related reason" also refers to putting someone in a less favourable position based on parenthood and family responsibilities. The provision thus covers, for example, family leave defined in the Employment Contracts Act in addition to pregnancy and maternity leave.
The Equality Act has been complemented over the years to bring it into alignment with the EU law binding on Member States and its legal practice. Provisions of EU law that require particular attention include the prohibition of pay discrimination in the CSC Treaty and the Equality Directive (2006/54/EC), as well as the provision of the Directive on Work-Life Balance (2019/1158/EU) according to which rights that have been acquired or that are in the process of being acquired by workers must be maintained until the end of the employee's family leave. The provision is intended to prevent the loss or reduction of rights based on an employment contract that have already been acquired, or that are in the process of being acquired, when the employee begins their family leave. The purpose is to guarantee that the employee will have the same status with regard to these rights at the end of the leave as before it.
When evaluating the right to a performance bonus, the employer must take into account the ruling of the Court of Justice of the European Union, according to which an employee on family leave must be considered equivalent to those who are actively employed with regard to retroactive pay. According to the Court's ruling in case C-333/97 Lewen, the work performed by an employee on family leave in the year in question must be taken into account in their pay. The employee would otherwise be put in an unfavourable position, violating the prohibition of discrimination.
The Lewen ruling contains legal norms on taking the maternity leave of a pregnant employee and other statutory family leave into account. These norms are discussed in more detail below.
Why must maternity and pregnancy leave be considered equivalent to active employment?
Maternity leave must be counted as equivalent to active employment when calculating the performance bonus rights of an employee who has been pregnant and has given birth. Any other approach would constitute direct discrimination based on gender, with the female employee being discriminated against solely in the capacity of an employee, since the period in question would have been counted as active employment if she had not been pregnant. Maternity leave may not reduce payments made to an employee. This rule is based on the special protected status of pregnancy and maternity in Union law.
The Ombudsman for Equality stresses that, when considering case C-333/97 Lewen, it must be noted that the Court ruled that an employee who gives birth may not be put in a discriminatory position during maternity leave, because that period would have been counted as active employment without the pregnancy and maternity leave. The 30 days referred to in the judgment was based on the national legislation of the state that requested the preliminary ruling. This does not permit the conclusion that this period would also be 30 days in Finland, since the statutory maternity leave has been 105 working days here. The maternity leave under the Pregnancy Protection Directive must be counted as equivalent to active employment in its entirety. Any other interpretation would put the employee taking maternity leave in an unfavourable position based on pregnancy and giving birth, since the period would have been counted as active employment in its entirety if the employee would not have been pregnant and on maternity leave.
After the family leave reform, family leave now only constitutes a pregnancy allowance period of 40 working days under the Health Insurance Act and the corresponding pregnancy leave under the Employment Contracts Act, as well as the parental and child care leave following this period. The share of family leave that must be counted as fully equivalent to active employment in terms of the right to a performance bonus can be interpreted in a number of ways, which are discussed in the Ombudsman for Equality's statement TAS/301/2023. Putting parents in an unequal position during parental leave in terms of the time counted as equivalent to active employment and only paying the salary of the parent who gave birth could be considered to violate the Equality Act.
The Ombudsman for Equality finds that the pregnancy leave of 40 working days provided for in the Employment Contracts Act, i.e. the period for which the employee is entitled to the pregnancy allowance, must be counted as equivalent to active employment.
Is a different approach to different types of leave justified?
The scheme evaluated in statement TAS/301/2023 excludes all employees who have been absent from work for more than 6 months from the right to a performance bonus, regardless of the grounds for the absence. According to the employer, this is in line with the principle of equal treatment. Employers have also invoked the same justification in some of the other schemes evaluated in the past.
The Ombudsman for Equality stresses that the use of family leave is protected by the prohibition of indirect discrimination based on parenthood or family responsibilities under section 7, subsection 3 of the Equality Act. The status of an employee taking family leave must be considered equal to active employment and cannot be directly compared to other types of absence. When evaluating the right to retroactive pay in light of the prohibitions of discrimination, employees on parental and child care leave are equivalent to actively employed persons and not to those absent for other reasons, whose status is not addressed in this statement.
The possible justification of indirect discrimination will then need to be assessed. Putting an employee in an unequal position is not prohibited by the Equality Act if the discrimination is indirect and the action is aimed at achieving an acceptable objective and if the chosen means must be deemed appropriate and necessary in view of this objective. Discrimination based on parenthood and parental and child care leave can be justified under section 7, subsection 3 of the Act if it is aimed at achieving an acceptable objective and the chosen means are appropriate and necessary.
In such cases, the employer must demonstrate that its refusal to pay employees who have taken family leave their share of the performance bonuses is aimed at achieving an acceptable objective and that the chosen means must be deemed appropriate and necessary in view of this objective. According to legal practice, the chosen means must be necessary for achieving the objective in an assessment of the action's proportionality. The Ombudsman for Equality notes that the employer did not refer to any objective it would consider acceptable to justify the discriminatory practice.
What does proportionality mean and how are the performance bonus rights of an employee on parental or child care leave calculated?
Parenthood and family responsibilities are independent grounds for indirect discrimination in the Equality Act. The provision protects women and men who take family leave equally.
The Ombudsman for Equality considers a performance bonus scheme in which an employee on family leave does not receive a performance bonuses even for the time they have been actively employed or on maternity or pregnancy leave during the performance bonus period to be in violation of mandatory legislation. An employee taking family leave must receive their share of the performance bonus, which is deemed to constitute retroactive pay, by virtue of the prohibitions of discrimination.
The absence of an employee taking maternity leave or pregnancy leave under the current legislation must be considered equivalent to active employment for which the employee accumulates performance bonus rights. It is not necessary to take the share of other types of family leave into account in the same manner as equivalent to active employment if such absence is not based on maternity or pregnancy leave. However, other types of family leave must be taken into account when evaluating the employee's right to a proportional share of the performance bonus. Family leave may not cause an employee to lose their right for the whole year's performance bonus. Therefore, the employee must have a right to a proportional share of the year's performance bonus according to the pro rata temporis principle.
For example, in matter TAS/301/2023, A's right to a performance bonus was defined as follows: Firstly, A's active employment from 1 January to 11 March 2022 before the start of her maternity leave, as well as her whole maternity leave from 12 March to 16 July 2022, or 6.5 months in total, must be taken into account in her share of the performance bonus. No performance bonus is accrued for the parental leave period from 17 July to 31 December 2022, and this period of 5.5 months proportionally reduces the employee's share of the performance bonus. A is entitled to a share of the year's performance bonus equivalent to 6.5/12 months from her employer.
The significance of individual performance in the assessment of performance bonus rights
Requiring employees to fulfil personal performance requirements in order to be paid a performance bonus is acceptable, provided that the employer's performance bonus scheme includes a personal performance requirement.
In the scheme evaluated in matter TAS/301/2022, the amount of the performance bonus is influenced by the achievement of the employee's personal target or targets, team-specific targets and the employer's general targets for all employees. The team-specific targets with relevance for the entitlement to a performance bonus have been the same for years, although they have been reconfirmed each year. Furthermore, a part of the performance bonus is linked to the employer's result, and receiving the performance bonus did not require a personal input from A for this part. A stressed that she had been working in the same position for years and some parts of her personal targets had not changed during that time. According to the information provided by A, her supervisor had also assessed her performance for 2022. In the Ombudsman for Equality's estimate, A must be considered to have also met her personal performance criteria for 2022 in a manner entitling her to her share of the performance bonus.
The Ombudsman for Equality has stated in previous statements that the greater difficulty of assessing the performance of employees on family leave cannot be considered an acceptable reason for indirect discrimination. The performance of employees who have been on family leave can be assessed in relation to their period of active employment.
Furthermore, the Ombudsman for Equality exhorts the employer to ensure that, going forward, targets for the rest of the year will be quickly defined for employees returning from family leave so that are not de facto deprived of the opportunity to receive the employer's performance bonus due to their family responsibilities. The employer's inaction in this regard may not be to the detriment of the employee.
General information on pay discrimination
For additional information, please contact: Senior Officer Suvi Vilches, tel. +358 295 666 835
08.01.2024
