The impact of family leave on performance bonuses (TAS 518/2020, issued 11 November 2021)
Man A asked the Ombudsman for Equality to investigate whether he had been discriminated against because his family leave (paternity and child-care leave) prevented him from getting the full performance bonus for the year.
The purpose of employer A's performance bonus system is to reward employees for good results and thus incentivise them to target- and performance-oriented work. According to the employer, the performance bonus system rewarded employees if they did well or achieved their personal performance targets in the year during which the performance bonus was accumulated. The payment of performance bonuses also required that the employer had achieved its overall performance targets by an excellent margin and that its financial situation permitted the payment of performance bonuses. In addition, in order to be eligible for the performance bonus, an employee had to work for at least three quarters (9 months) of the calendar month in question and still be on the employer's payroll at the time of payment.
Questions to be assessed
The matter was about whether the individual should have been entitled to be admitted into the performance bonus system in 2019 and whether his paternal and child-care leave prevented him from receiving the performance bonus. It also involved the question of whether the employer had an acceptable reason for its practice.
In his statement, the Ombudsman for Equality discussed the concept of 'performance bonus' as a retrospective pay component in line with the legal practice of the Court of Justice of the European Union.
The purpose of the pay system affects the assessment of discrimination
The Act on Equality between Women and Men prohibits direct and indirect discrimination as well as gender-based discrimination in the determination of pay. The employer's conduct may be illegal if an employee is put in a less favourable position due to family leave, for example. The provision covers pay discrimination based on maternity leave, paternity leave, parental leave and child-care leave (section 7 and section 8, subsection 1, paragraphs 2 and 3)
The Ombudsman for Equality found that an employee's right to various pay benefits while on family leave must be assessed in relation to the purpose and objectives of the specific pay benefit in question. It depends on the purpose of the performance bonus whether employees deprived of the bonus can be considered to be in the same or a comparable position to the employees who received the bonus. The EU Pregnancy Protection Directive (92/85/EEC) that the maintenance of payments or entitlement to an adequate allowance is guaranteed to workers on maternity leave. The purpose of the Pregnancy Protection Directive is to ensure the maintenance of an adequate income during maternity leave.
However, the right to a retrospective pay component is not assessed from the perspective of the realisation of the minimum allowance provided for in the Pregnancy Protection Directive, but from the perspective of the prohibitions of discrimination provided for in the Equality Directive 2006/54/EC (Court of Justice of the European Union decision C-333/97 Lewen). The Ombudsman for Equality found that the performance bonus system being examined constituted such retrospective pay that was subject to the additional requirement of good personal performance against one's own performance and development targets.
Various causes of absence in the assessment of the practice in terms of gender-based discrimination
For Man A, the question involved the right to a performance bonus during paternal leave, but the statement of the Ombudsman for Equality also addressed the matter in terms of the determination of other family leave under EU law.
In its Lewen decision, the CJEU found that compulsory maternity leave (during which it is prohibited to work) shall be assimilated to periods worked in the calculation of bonuses. The CJEU found that if compulsory maternity leave was not assimilated to periods worked, a female employee would be discriminated against as a worker since, if she had not been pregnant, the period in question would have been counted as a period worked.
Finland's national legislation provides for a 105-day maternity leave including a compulsory four-week period. If they were not pregnant, an employee would be working for both the compulsory four-week period and the remainder of the maternity leave. For this reason, the Ombudsman for Equality has found that the compulsory and other parts of the maternity leave should not be differentiated, and that the entire maternity leave should instead be taken into account in the determination of bonuses intended to reward personnel retroactively for work performed. With regard to maternity leave, therefore, the whole absence should be assimilated to periods worked according to the Ombudsman for Equality.
Conversely, in EU law, parental and child-care leave have not been treated similarly, because their grounds have been found to be different. The maternity allowance has been granted on the grounds of providing an opportunity to ensure the health of the parent and child and care for the child at home by staying away from work. The national paternity allowance has, however, been used to encourage fathers to participate in the care of their child and establish a good relationship with their child. It is thus possible that the two are not comparable with regard to the payment of a performance bonus. However, an employee on parental or child-care leave must receive a share of the performance bonus proportional to their time at work if their performance meets the requirements of the performance bonus (Lewen C-333/97).
The CJEU does not address paternity leave provided for in national legislation, but it must be assessed similarly to parental leave at minimum.
Assessment of acceptable reasons
Whereas putting someone in a less favourable position on the grounds of maternity leave raises suspicions of direct discrimination, parental leave, child-care leave and paternity leave constitute causes of indirect discrimination related to parenthood or family responsibilities as referred to in the prohibition of indirect discrimination in the Act on Equality between Women and Men (Equality Act). In such cases, an employer is not considered guilty of discrimination if they can demonstrate an acceptable reason not based on gender for their practice.
The Ombudsman for Equality adopted the position that the fact that employees have also been excluded from the performance bonus system based on other absences than family leave cannot be considered to constitute an acceptable reason for the less favourable treatment of employees on family leave under the Equality Act. Neither can the acceptability of the system under the Equality Act be justified by the fact that the ratio of women to men has usually been fairly equal among employees deprived of performance bonuses on the grounds of absences of various kinds. Discrimination based on parenthood or family responsibilities is not tied to the gender of the employee, but applies equally to putting women or men in a less favourable position based on parenthood or family responsibilities.
In the opinion of the Ombudsman for Equality, the fact that it is more difficult for the supervisor to assess the performance of such employees than those who have been at work for nine months or more cannot be considered an acceptable reason under the Equality Act either. The performance of employees who have been on family leave can be assessed in relation to their period worked.
The Ombudsman for Equality found the condition of working for nine months to be eligible for the bonus to be in violation of the Equality Act insofar as it causes employees who have been on family leave to be denied the performance bonus for the period they have actually been at work.
The Ombudsman for Equality found a performance bonus system that completely excluded employees who had taken more than three months of family leave in circumstances in which the employer had exceeded its overall performance targets by an excellent margin and the employer's financial situation permitted the payment of performance bonuses to be in violation of the Equality Act.
The employer discriminated against A under the Equality Act when it did not pay man A the portion of the performance bonus corresponding to his time at work in 2019 and could not demonstrate an acceptable reason for its practice under the Equality Act. The Ombudsman for Equality urged the employer to change its performance bonus system so that maternity leave is counted as a period worked and employees on paternity, parental and child-care leave are paid a portion of the performance bonus corresponding to their time at work. Requiring the employees to have performed as required to be eligible for the performance bonus during their time at work is an acceptable additional requirement for payment of the performance bonus.