The Americans with Disabilities Act prohibits employers from discriminating against protected individuals with respect to terms and conditions of employment, including compensation. Employers frequently ask whether these restrictions prohibit them from reducing bonuses paid to employees who miss extensive work during the bonus measurement period. According to a new decision from the Second Circuit Court of Appeals, employers can reduce discretionary bonuses based on the disabled employee’s absence from work.

In Davis v. N.Y.C. Dep’t of Educ., the plaintiff missed four months of the school year due to medical problems and jury duty. The school received a $3,000 bonus pool for each staff member, and the teachers’ collective bargaining agreement gave an administrative committee the discretion to allocate the bonuses. The plaintiff received a $1,000 bonus and sued for disability discrimination, pointing to two other teachers who had missed extensive time from work for non-disability related reasons, but had received higher bonus payments.

The Second Circuit rejected this claim, affirming summary judgment for the school district. The court first rejected the lower court’s basis for its decision, noting that claims of pay discrimination involving a discretionary bonus can constitute an adverse employment action under the ADA. However, the Second Circuit concluded that in this case, the bonus was not determined in a discriminatory manner. Although the two other absent teachers received higher bonuses, they missed less time than the plaintiff, and the school articulated legitimate reasons for the discrepancy.

This reasoning may not apply to incentive bonus plans that do not contain discretionary elements. Employees taking ADA or FMLA leave can have such bonuses reduced based on their absences, but only if such reduction falls within the terms of the bonus plan. For this and other reasons, employers drafting incentive bonus plans may want to include some discretionary element that would allow adjustment based on reasoned and documented conclusions relating to the employees’ relative contributions to the organization’s success during the bonus measurement period.