Kiera writes:


1. Introduction

Bonuses are receiving bad press at the moment. There is outrage at payment of large bonuses to exiting chief executives who have arguably failed to do the job they were employed to do and global pressure to bring bonuses in the banking sector under control.

However, payment of bonuses and commissions is a useful way of incentivising employees and motivating them to achieve goals.

Schemes have become more sophisticated and inventive, helping employers to maximise productivity, profit, safety and quality. In 2009 some railway workers were promised bonus payments in return for a ‘strike free’ year. 


2. Discrimination

Bonus schemes, intended to be positive, are not without their pitfalls. Employers should ensure that schemes are fair and that they do not reward one particular part of the workforce to the detriment of others. Part time workers often miss out on bonuses due to the nature of targets and indirectly this may affect female workers or those with disabilities. Employers should assess the impact of the scheme to check that it achieves its aim without discrimination.


3. Paperwork

Bonuses are usually written into a contract of employment but are equally payable if the payment is regularly made by way of ‘custom and practice’. The terms of bonus schemes and clauses should be very clear in order to avoid disputes. They should cover in particular, when entitlement arises, timing and frequency of payments, whether it is dependent on any other factors (such as overall business performance), whether the employer reserves any right to stop or withdraw payment and what happens on termination of employment.


4. Termination of Employment

Most disputes over bonuses arise when an employee is leaving their employment. The basic rule is if the bonus has been earned, or is expected by the employee it is payable. Employees can bring a claim for unlawful deduction of ‘wages’ under the Employment Rights Order (NI ) 1996 if the claim can be quantified and has fallen due, otherwise they may be able to claim damages for breach of contract.

Although the very definition of the word bonus means something given or paid over what is due, if a bonus has been regularly paid it is very difficult to say it is discretionary. This applies even where the bonus clause reserves discretion to the employer over whether and when it is payable.


5. Cutbacks and Changes

Bonus payments are controversial against the backdrop of an ailing economy. Bonuses are often the first thing an employer will look at when trying to make savings. There is a temptation for employers to consider bonuses as an expendable luxury instead of a contractual right. Care must be taken in implementing any change to bonus schemes. The European Parliament approved legislation on 7th July that will cap and defer bonuses to banking employees. However, it is not clear whether the UK government will seek some exemption from this legislation. Banking employees may argue that they are contractually entitled to payments but their employers will be able to defeat these arguments if they are required to make cuts as a matter of law.

Employers need to review the terms of their schemes and treat them as they would a variation to any other term of the contract. Notice should be given an agreement sought for any change or non payment the employer is planning. Failure to do so can have drastic consequences. The perception of unfairness in treatment between employees when it comes to pay and bonuses is especially contentious – BT faced the threat of strike action over what employees considered an unfair pay deal and bonuses. Consultation and consent is usually less expensive than claims.