Managing a bonus dispute at work
What to do if you believe you have been denied a bonus
Bonus disputes can be complex and highly contentious area of employment law. Our expert employment solicitors explain how to manage a bonus dispute at work.
A bonus dispute is a disagreement between an employee and their employer about the payment of a bonus, and they can arise for a variety of reasons.
In the UK, bonus disputes are governed by employment law and if an employee believes that they are entitled to a bonus but the employer has refused to pay it, the employee may be able to claim for breach of contract. If an employee believes that the amount of bonus that they have been awarded is unfair, they may be able to claim for unfair discrimination.
If the employer is a member of a trade union, the employee may also be able to raise the dispute through the union’s grievance procedure.
If you have a question regarding a bonus dispute then you can read our helpful guide to managing bonus disagreements, or alternatively you can speak to an expert member of our team today via the details below.
Are there any rights to receive a bonus?
Bonuses can be either contractual or non-contractual.
If a bonus is contractual, reference needs to be made to the contract of employment and any contractual bonus schemes.
If a bonus scheme is contractual with defined performance criteria, the question of entitlement to that bonus will be straightforward. Often the bonus will be calculated by reference to objective performance criteria, either of the employee or the business, or a combination of the two. If the employee meets those performance conditions, an employer will be required to award the bonus.
However, sometimes performance targets can be subjective and more difficult to measure, such as where a bonus is calculated based on a general assessment of an employee’s performance. An employer may therefore have discretion as to whether those performance conditions have been met, provided it acts in a fair manner.
Sometimes, and particularly with senior employees during their first year of employment, a contractual scheme may guarantee that an employee is entitled to a certain level of bonus in a certain period. This will amount to a contractual arrangement, as a binding promise has been made and the bonus can be calculated precisely.
Typically, a non-contractual bonus will state that there is no right to a bonus but that payments may be made at the employer’s discretion.
There are two types of non-contractual bonuses, that is, bonus schemes where an employer either has either (a) absolute discretion or (b) partial discretion as to whether to award an employee a bonus and the amount of any bonus awarded.
There is no automatic right to a bonus unless you have a ‘guaranteed bonus’ as set out above. The only other instance where you may have the right to receive a bonus if you meet the goals set out in a contractual bonus scheme, though as discussed this can be at an employer’s discretion.
What reasons can my employer give for denying my bonus?
Where an employee has a non-contractual bonus, there will be no right to a bonus and payments may be made at the employer’s discretion.
Either an employer will have (a) absolute discretion or (b) partial discretion as to whether to award an employee a bonus and the amount to award.
When considering whether an employer has partial discretion, or absolute discretion, an Employment Tribunal will examine the wording in an employee’s employment contract.
Scenarios where the employer has absolute discretion are uncommon. However, provided that the employer operates the bonus scheme accordingly, it will be difficult for an employee to claim they have a right to a bonus.
It is more typical for non-contractual bonus schemes to state that an employee will be considered for a bonus and therefore, employers will often have partial discretion as to whether to award a bonus. Depending on the circumstances, there may be a number of reasons which employers may give to an employee for refusing to pay a bonus, for example poor performance or not meeting targets. However, there are limits placed on an employer’s discretion with regards to exercising its discretion and awarding bonuses.
Specifically, an employer is obliged (a) to exercise its discretion honestly and in good faith (b) not to exercise its discretion in an arbitrary, capricious or irrational way and (c) not to breach the implied term of trust and confidence which exists been an employer and employee.
This means that an employer will need to exercise its discretion in a way which is not irrational, and they must act in a way that a reasonable employer would. Your employer also cannot consider irrelevant factors when deciding whether to award a bonus, for example a personal vendetta or dislike against you.
Regardless of whether an employer has absolute or partial discretion to award a bonus, if bonuses are paid on a regular basis, an employee may be able to argue they have an implied contractual right as a result of custom and practice.
My bonus was promised to me verbally, do I have any rights to receive it?
If an employee can establish that a bonus entitlement is contractual, then they will be able to enforce it. To establish that a verbal promise is contractual, such a promise will need to be (a) sufficiently certain and quantifiable and (b) there must be an intention to create legal relations.
When considering whether there has been an intention to create legal relations, the objective conduct of the parties should be considered. Where a term is being introduced into an existing relationship in an employment context, it is very likely that such a term is intended to be legally binding.
Can a company take back a bonus once paid?
In certain circumstances, employers may seek to make bonus payments repayable. For example, employers that offer sign-on bonuses will often provide that the bonus must be repaid if an employee leaves before a certain time or fails to perform the contract.
It may be possible for employees to challenge such a repayment clause, on the basis that it is a penalty clause (a clause which unduly punishes a breaching party) or an unlawful restraint of trade.
Depending on the sector, clawback provisions will be more common.
A clawback provision is a clause in an individual’s contract of employment that allows an employer to recover a bonus where either a company has had to restate its accounts, or the recipient of the bonus has committed a serious wrongdoing.
Clawback provisions are common for those working within the financial sector and require employers to comply with numerous remuneration codes. Employees of listed companies will also have clawback provisions in bonus schemes to comply with the UK Corporate Governance Code.
Can I claim for an unpaid bonus?
It is possible to claim for an unpaid or underpaid bonus. This can be achieved either through a claim for: –
- Unlawful deduction from wages. This can be made to an employment tribunal during employment or within three months of termination of employment.
- Breach of contract or wrongful dismissal.
A claim for breach of contract can be made in the employment tribunal however, the maximum award payable is capped at £25,000.
If the value of the bonus exceeds £25,000 then it will be necessary to make a claim in either the Country Court (for claims up to £50,000) or the High Court. Damages that may be awarded in the High Court are unlimited.
Can I receive a bonus if I leave?
It will be necessary to refer to the contractual documentation in order to determine whether there are any conditions relating to termination.
There may be express terms relating to termination within the contract of employment. For example, sometimes, a bonus payment will be conditional on an employee being in employment and not under notice.
What is Payment In Lieu Of Notice (PILON)?
An employment contract may contain a clause which permits the employer to terminate an employee’s contract of employment by making a payment in lieu of notice (PILON).
By making a payment in lieu of notice, .
The effect of a PILON is that the employer can terminate an employee’s contract without notice and, more importantly, without being in breach of contract. Depending on how the PILON clause is worded, the employer may need to make a bonus payment to a departing employee.
Either the PILON clause will explicitly state that the employer needs to only pay basic salary on termination, and therefore there will be no liability for any bonus that would have become payable during the notice period. Or, if the PILON refers to “payment in lieu of notice” then typically, this will be interpreted to include any bonus that would have been payable had the employee remained in employment during the notice period.