- Alex Kleanthous
- Updated: Mon, 12th Dec 2016
Not all bonus payments are legally supportable. If your bonus is lower than expected there may be avenues to push to improve your position. We review and tell you where you stand.
Our services for resolution of bonus disputes:
We work with directors and highly paid employees who want to know if they can challenge their bonus. Employers do try and push their luck. We offer specialist expertise across a range of sectors including finance, hedge funds and commission driven businesses.
How to challenge the bonus
A bonus can be contractual or discretionary or a combination of both. An employer may say a plan is discretionary. However, the bonus may not in fact be discretionary. Or the scope of the employer’s discretion may be limited.
It is necessary to establish what type of bonus is in dispute. This is because employment law rights for employees and directors flow from the bonus plan. Employment rights differ depending upon whether the bonus is contractual or discretionary.
Fair calculation of the targets
Many bonuses are based on hitting targets. That element of the bonus may be contractual. The question arises, how are the revenues and targets to be actually measured? We are involved in cases where the employer has blurred the boundaries, wrongly, to reduce the bonus payment.
- It can be necessary to look behind the paperwork to interrogate the actual method used for calculating the bonus. Many challenges succeed when the financials are picked over.
Fair exercise of discretion
Many bonuses leave quantification of the bonus paid when targets are reached to the discretion of the employer. An employer’s discretion must be fairly exercised. What is fair is open to interpretation based on the facts.
Fairness depends upon not only the rules of the bonus plan. Consideration is required as to how the discretion has been applied for any particular employee. The courts will take into account how others were treated.
- The terms “absolute”, “sole”, and “reasonable” use of discretion are subtly different and yield different interpretations. We guide employees on interpretation.
First step towards resolution
The employee or director must put forward his complaints to the employer under a grievance.
Any employee or group of employees with statutory protection under the Equality Act 2010 may claim discrimination. The claim may be against a proposed change to the bonus scheme, or the actual bonus amount.
For instance, someone with a protected characteristic, e.g. race or gender, can claim to be entitled to the same bonus payment as an individual without the protected characteristic.
If the employee believes discrimination is in play they should serve a specially designed questionnaire. Discrimination questionnaires can be served alongside a grievance. However, in practice, most employers do not provide the meaty detail the employee needs to determine the strength of the case. This means that the employee is forced down the Employment Tribunal route.
Disclosure of information
Once in the Employment Tribunal system an order for the release of information can be made by the employee to court. Further information is set out below.
Another route to obtaining information is via a subject access request under the Data Protection Act.
Obtaining information from the employer
Extracting information from an employer concerning their decisions on bonus payments is often the stumbling block. Employers resist requests initially. Employers naturally want to make it hard for employees. We will be familiar with the tactics and will share this with you.
Court orders for release of information made by the court
Sometimes the only way to obtain information is for the employee to lodge a claim in court. This is because once a claim has been initiated in any court there is a system for extracting information. The court must be satisfied the information is needed by an employee to prove the case.
A request for information under the Data Protection Act should be considered before any application is made to court.
Refusal to co-operate
Employers can be penalised for not co-operating and or being unreasonable. The way employers can be penalised differs depending upon which court hears the case.
- In the Employment Tribunal the risk is the compensation awarded is uplifted by up to 25%.
- If the case is brought in the High Court the employer runs the risk of a costs award if it caused costs to be incurred unnecessarily.
Trigger for settlement
We do see cases settle shortly before the deadline for any order for disclosure made by the court. This is because employers do not want to release information if it reveals that the bonus was not fairly allocated. The problem is, the employee will have been forced into taking the case to court.
There are other landmark dates in the court process that can encourage settlement. The employer will be hoping the employee does not get that far.
Threats for an employer
Employers may not show it, but most employers want to avoid claims in the Employment Tribunal or other courts. Employees have a variety of employment law claims to consider which can be used to settle a bonus dispute depending on the facts.
Possible claims arising on failure to pay a bonus
If you believe you have been short changed on your bonus payment you may have any one of the following claims:
- Damages for breach of contract;
- Wrongful dismissal;
- Unlawful deductions from wages;
- Unfair dismissal; or
- Equal pay.
Attempt to settle the bonus dispute
Before lodging a claim, the employee must work through attempts to settle the dispute. Settlement is not a sign of weakness. Settlement is a pragmatic approach which keeps the costs down. Settlement also reduces the length of time it takes to resolve matters. Litigation in the High Courts is slow.
- The drop in the number of claims lodged at Employment Tribunals has improved the speed for Employment Tribunal cases considerably.
How to settle
The employee should put forward:
- Settlement discussions on a without prejudice basis;
- In appropriate cases offer methods of dispute resolution such as mediation; and
- Consider involving experts. Experts play a role in cases such as where the accounts on which a bonus is based are in question.
Attempts to settle are not usually put forward until the employee has raised a grievance. A well constructed grievance should rattle the employer and make it more inclined to settle.
Share based bonuses
There are risks to consider when a bonus is paid in shares, including but not limited to:
As a shareholder you face the dangers of dilution.
In many private companies you will be required to transfer shares on cessation of employment for any reason. There are protections which can be put in place. Protections are not automatic and do require negotiation.
Most employee options will lapse on cessation of employment and you will lose your rights. Your position can be protected but will require negotiation as being able to continue as an option holder post termination of employment is not usually an automatic feature of many plan rules.
If the shares subsequently decrease in value, HMRC does not refund due the tax you paid on receipt of the shares. Ideally, you should negotiate an indemnity from your employer.
Bonus dispute resolution: track record
We act for senior executives and directors. Usually, we settle without going to court. Recent instructions include:
- Challenged a hedge fund’s amended employment contract for an employee. We removed a clause reserving bonus payments for the fund managers’ absolute discretion.
- Enforced, in the High Court, a derivative trader’s bonus entitlement following a dispute with an international investment bank.
- Settlement agreement for a director in an international natural resources recruitment company. The director left as a good leaver and remained entitled to an annual bonus on termination of her employment.
- Resolved a bonus dispute between an employee of a publishing company and the company itself. The company sought to withdraw the employee’s entitlement by varying the employee’s employment contract.
It’s frustrating, disappointing and unfair when you don’t receive your expected bonus. We have resolved so many bonus disputes we quickly tell you your chances of success. We usually avoid the time and costs of court action, and negotiate a cost-effective resolution.
My team has resolved many bonus disputes quickly and effectively. Bonus disputes in the financial services industry is a particular expertise. Why not call or email me to arrange an informal discussion...