Bonus Disputes

Bonus schemes tend to fall into two types – discretionary and contractual – or the scheme may be a mix of both of these. The structure of the scheme will usually be set out in an employee’s contract of employment. Where the scheme combines both these types of bonuses, in general this will give the employee the right to be taken into account when it comes to awarding bonuses, but whether or not that bonus is given will be up to the employer. 

Contractual bonuses

Where there is a guaranteed bonus, the bonus is given to an employee regardless of that employee’s performance, or how well the company itself is doing. All that is required is for the employee to be in employment at the company at the time that the bonus is due to be paid. In some cases, the bonus is not payable if there is a termination of the employment ‘for cause’ i.e. where there has been gross misconduct. 

The only situation in which an employee could still claim for a bonus under such circumstances is if he or she could prove that the gross misconduct (or other ‘cause’ did not take place). A non-payment of this type of bonus by an employer becomes a debt owed to the employee and may trigger a debt recovery claim. This must be made by an employee within six years from the date on which the bonus should have been paid and is made in the County Court, or for a high value claim, the High Court.

Discretionary bonuses

Everything about a discretionary bonus is open to being decided by the employer, from who is to get the bonus to the amount of bonus that can be awarded. However, the discretion used in making these decisions must not be used in a way that is ‘irrational or perverse’ (it is an implied term of any bonus scheme for an employee to expect a decision not to be made in this way).

This kind of bonus requires the employer to use his or her discretion to decide whether or not to award an employee a bonus and if the bonus is to be awarded, how much it should be.

In both these situations, the decision must not be irrational or perverse. If a claim proceeds to court, every effort is made to give practical effect to the actual agreement made about bonuses between employer and employee. Discretion will usually also allow the employer to amend the terms of the bonus scheme and again this discretion should be exercised correctly.

Whether or not a discretionary bonus is judged to have been properly thought through by the Courts will depend on the contract of employment and the performance conditions for receiving a bonus, as well as the performance of both the employee and his or her department, as well as the way in which other employees who perform similarly are treated. What is customary practice for the industry in which the employee works may also be taken into account.

Issues with bonuses

A situation in which an employee had received a written statement from an employer that there would be a bonus payment made means that this bonus is contractually due. If the bonus is then not paid an employee will most likely have a claim for breach of contract.

There are two situations in which an employee should take employment law advice before acting:

1. Where that employee is considering resigning from a position which has a discretionary bonus scheme – resigning at the wrong time could cause an employee to not receive a bonus payment.
2. Where an employee feels his or her bonus is unfair – particularly if a zero bonus has been received despite good performance. It is possible to challenge an obviously unfair bonus, either through a settlement with an employer or Court action. However, advice should be taken before acting to determine whether the bonus really is unfair.

Making a claim for non-payment of a bonus

Both discretionary and contractual bonuses can be a source of confusion for employees, and if you think that you have been unfairly treated by your employer, contact an employment law specialist. It is not uncommon for employees to bring claims relating to bonus payments not being made and unlawful deductions from wages. An expert in this aspect of employment law can provide you with the legal advice you need relating to bonus disputes. 

When making Employment Tribunal claims, rather than County Court or High Court claims, they must be lodged within three months less one day from the date that the bonus was due to be paid or you were informed that you would not be receiving the bonus. 

Should you decide to make a claim to an Employment Tribunal for non-payment of a bonus, a specialist employment law solicitor can guide you through the process of doing so. The Nationwide Employment Lawyers team provides employment law services to employees and you can complete the claim questionnaire below to contact us.