• Facebook
  • Twitter
  • LinkedIn
Call us now: 01243 836 840   [email protected]
Pure Employment Law
  • Who We Are
    • Nicola Brown
    • Peter Stevens
    • David Jones
    • Debbie Poole
    • Linda Nye
    • Brenda Cherry
  • For Employers
    • Advice on HR and People issues
    • Investigations, Hearings and Appeals
    • Restructuring and Redundancy
    • Defending Employment Tribunal Claims
    • Dismissal of Senior Executives
    • Contracts, Handbooks and Policies
    • Employment Law Training
  • For Employees
    • Settlement Agreements
    • Workplace Issues including Disciplinary and Grievance
    • Bringing an Employment Tribunal Claim
  • Employment Law Events
  • Legal Updates
  • Testimonials
  • Vacancies
  • Contact us
  • Search
  • Menu Menu

Show me the money – bonuses and potential issues

15th December 2011

Recent research by Unum and Personnel Today shows that 55% of employers are continuing to operate bonus schemes despite the recession. Bonuses can be a huge attraction for recruitment into businesses and indeed, are expected in many sectors. However, problems can arise when the rules of any bonus scheme are unclear or aren’t documented.

Non payment of a bonus to an employee can lead to claims by employees for:

• unlawful deduction from wages in the Employment Tribunal; or
• breach of contract in the Employment Tribunal; or
• breach of contract in the civil courts.

If the claim is for breach of contract there are advantages and disadvantages to bringing the claim in the Employment Tribunal. For example, the maximum the Employment Tribunal can award for breach of contract is £25,000, whereas there is no limit in the civil courts. There are also different costs rules in the courts, whereas it is still relatively rare for costs to be awarded in the Employment Tribunal. The time limit is also a consideration – for the Tribunal it is usually 3 months from the date of termination of employment, whereas in the courts it is usually 6 years from the date of the breach.

Most employers wish to make sure bonuses are discretionary so that there is no obligation to pay a bonus if, for example, the company has not made enough profit over the financial year. The question can arise as to whether a bonus payment is genuinely discretionary, or whether it is in fact a contractual entitlement which must be paid and could be considered part of an employee’s wages. This could entitle an employee to make a claim for unlawful deduction from wages in the Employment Tribunal.

The starting point to determine this, as with many employment benefits, is to look at what the documents say. There may be a clause within a contract of employment related to a bonus payment, or there may be a policy in a staff handbook or an entirely separate bonus scheme document.

The appearance of a clause in a contract of employment may indicate that the bonus is a contractual entitlement. However, quite often this is based on discretionary elements, such as particular performance criteria being met by the employee. This can mean that a bonus payment must be paid; but the amount that is paid may vary and could in reality be nothing if the employee has not met the specified criteria for a bonus.

It is of course fundamental that employees are assessed in relation to any bonus criteria in a fair and reasonable manner, as treating some less favourably than others could potentially be discriminatory or a breach of the duty of trust and confidence. The criteria used must also be reasonable and objective. It is important to make the criteria clear and transparent to all employees to avoid issues. If an employee fails to achieve a bonus then it is best to make it clear to them why they have not achieved the criteria and how they could improve their performance for the next round of bonus payments.

The conclusion that a bonus payment is discretionary may be much easier to come to when bonus schemes are specified in a policy or separate document rather than a contract of employment. However, this is not the only factor to consider and an entitlement to a bonus can be construed by virtue of custom and practice, such as where the same bonus has been paid year on year to all employees and they have an expectation that they will be paid a bonus.

The other consideration is bonus payments upon termination of employment. This issue has produced a wealth of case law over the years. A particular case of note in the Employment Appeal Tribunal involved an employee who resigned a few days before he would have been entitled to a bonus payment. The bonus scheme was not set out in writing as such, but there were some provisions in the contract of employment which purportedly said that in order for an employee to be eligible for a bonus, the employee must remain in employment and also not be under notice at the payment date. The Tribunal held that in fact these provisions were imprecise and not clear to the departing employee; had he been aware than it was reasoned that he would not have resigned until after that date (Noble Enterprises v Lieberum, UKEAT 67/98). Using another example, where an employee has been summarily dismissed for gross misconduct but has a contractual entitlement to receive a bonus they may be able to claim this payment. To avoid the issue, most bonus schemes specify that employees dismissed for gross misconduct are not entitled to any bonus.

If you would like to talk through a situation you are dealing with, or if you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected])

Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.
Share this article
  • Share on Facebook
  • Share on Twitter
  • Share on WhatsApp
  • Share on LinkedIn
  • Share on Reddit
  • Share by Mail
https://www.pureemploymentlaw.co.uk/wp-content/uploads/2019/02/Pure-Employment-Law-logo.jpg 0 0 Nicola Brown https://www.pureemploymentlaw.co.uk/wp-content/uploads/2019/02/Pure-Employment-Law-logo.jpg Nicola Brown2011-12-15 13:18:592014-12-03 15:57:35Show me the money – bonuses and potential issues

Join our mailing list

* = required field
Mailing Lists


Recent Legal Updates

  • Discrimination found in gender critical belief case 27th July 2022
  • Court of Appeal overturns Tesco fire and rehire injunction 27th July 2022
  • Changes to fit notes 27th July 2022
  • Where are we with the fire and rehire Code of Practice? 27th July 2022
  • Can long Covid be a disability? 29th June 2022
Link to: Contact Us

Any questions? Why not get in touch!

Our advice is always given in plain English without any waffle, and we focus on providing practical solutions to our clients’ problems.

Contact us

LEGAL INFORMATION

Pure Employment Law | 1 Little London, Chichester, West Sussex, PO19 1PH
[email protected] | Tel: 01243 836840

Pure Employment Law is the trading name of Pure Employment Law Limited, registered in England and Wales with company number 07134294 and whose registered office is 1 Little London, Chichester, West Sussex, PO19 1PH. Pure Employment Law Limited is authorised and regulated by the Solicitors Regulation Authority with registration number 533794. A list of the company’s directors is available for inspection at the registered office

DISCLAIMER

The information contained in this website is for general information purposes only. The information is provided by Pure Employment Law and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

Privacy Policy | Cookies Policy | Terms & Conditions | How to make a complaint | Sitemap

© Pure Employment Law 2022

Scroll to top

This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies as defined in our cookie policy.

Accept Cookie Policy

Cookie and Privacy Settings



How we use cookies

We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.

Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.

Essential Website Cookies

These cookies are strictly necessary to provide you with services available through our website and to use some of its features.

Because these cookies are strictly necessary to deliver the website, refusing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.

We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.

We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.

Google Analytics Cookies

These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.

If you do not want that we track your visit to our site you can disable tracking in your browser here:

Other external services

We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.

Google Webfont Settings:

Google Map Settings:

Google reCaptcha Settings:

Vimeo and Youtube video embeds:

Other cookies

The following cookies are also needed - You can choose if you want to allow them:

Privacy Policy

You can read about our cookies and privacy settings in detail on our Privacy Policy Page.

Privacy Policy
Accept settingsHide notification only