It's that time of year. Your bonus is about to be paid, and although your expectation may be higher than previous years because of the improving financial climate, you may also be in for a shock.
So what are your rights to challenge the bonus payment - or lack of one? Here’s our guide.
Contractual or Discretionary bonus
The ability of an employer to withhold a bonus payment will depend on the type of arrangement that you have in place. You will usually have the right to either a contractual or discretionary bonus.
A contractual bonus puts you in a stronger position, in that non-payment means you can bring a claim for a breach of contract. A discretionary bonus is more tricky as payment is subject to a set criteria established by your employer. This is usually based on your individual performance and/or the performance of your team or the whole company.
The good news is the courts in recent years have determined the mere fact that bonus payments are expressed to be "discretionary" is not necessarily the determining factor. All relevant circumstances need to be considered and employers cannot simply rely on "unfettered discretion" to justify non-payment of a bonus.
Court decisions in recent years mean that an employer must exercise its discretion in good faith and on reasonable grounds. So if you have met your bonus criteria, your employer must have reasonable grounds for not paying the bonus if they want to show that they have exercised their discretion in good faith. You could otherwise have a claim.
It is also the case that where it has been custom and practice for bonus payments to be made (notwithstanding there being a discretionary bonus clause), the payment is capable of having a contractual status by virtue of the previous repeated payments.
Moreover, if your colleagues and peers are receiving a more substantial bonus than you when you have both met the same objectives, your employer will find it very difficult to convince a tribunal that they were acting reasonably not to award you what your peers received.
Bonus payments on termination of employment
Often, the question arises whether payment of a discretionary bonus should still be made if you leave your job before receiving it.
Whether you have resigned or been pushed, the position will largely be determined by your contract. Many contracts of employment state that if you leave your job before the actual "bonus payment date", then you will not be entitled to a pro-rata bonus for that year. It is for this reason that some employers, especially banks, manage to escape liability to pay large bonuses by fast-tracking an employee out of the business before the bonuses are due to be paid (they would usually make a payment "in lieu of notice").
Recent case law has, however, suggested employers should still honour bonus payments if employees are on garden leave or still working their notice at the time the bonuses are paid.
If you have been dismissed for gross misconduct, there will almost certainly be no requirement to pay outstanding bonuses as you would have breached the terms of your employment and will have been dismissed summarily. You won't even receive a notice payment in such circumstances.
But the proposed European cap on the maximum level of bonuses may have some affect on how employers will exercise their discretion about bonus payments. One thing is clear though – employers should no longer be deciding such matters behind closed doors, and without any justification of how they have reached their decisions.
Philip Landau is an employment lawyer at Landau Zeffertt Weir Solicitors. You can follow him on Twitter.