Dealing with bonus disputes for employees

  • Posted

We are often asked to consider bonus disputes, both for employees and employers (because we act for employers too, we know how they think and approach these issues). The problem often is that the wording of the bonus scheme is vague and imprecise. Employers often believe that if the bonus is left to their discretion, then they can do whatever they want, including giving a zero bonus. However this is usually not the case. Employers must act in a way which is not arbitrary or capricious, even if the bonus is described as non-contractual.

If the employer has repudiated the employment contract the post termination restrictions may have become unenforceable.

We will always advise on your legal rights, and also on the best negotiating strategy.

These are some of the cases we have been involved with.

Bank failed to pay contractual bonus and tried to change the bonus scheme

We acted for a bank trader who had a bonus scheme based on a percentage of the profits he made for the bank. Part of the way through the year, the bank tried to change the bonus scheme. On our advice, the employee rejected the change and carried on working. The bank made him redundant and he claimed the £1.2m bonus he was entitled to under the original scheme. The bank refused to pay and we made a claim in the High Court.

We were successful in the Court of Appeal with a summary judgement, on the basis that the bank had no arguable defence. The Court of Appeal was unimpressed with the bank’s attempt to change the bonus scheme part-way through the year. The employee was awarded the full bonus.

Company awards zero bonus to leaving employee

Our client was a member of a bonus scheme which had for many years paid bonuses based on the employee’s individual performance and the company performance. He decided to leave and handed in his notice after the year end but before the bonus was due. He was awarded a zero bonus.

When we questioned this, we were told that the bonus scheme was discretionary because he was not going to be there in the future. As such, there was no need to incentivise him and so he was awarded a zero bonus. We challenged this on the basis that the scheme had always been based on past performance of the individual and the company. These had both been good for that year, and so the decision to give him a zero onus was arbitrary and based on the wrong factors.

We threatened to sue and were able to negotiate a substantial proportion of the bonus for the employee.

Raising a grievance over a low bonus

Raising a grievance is never something to be done lightly. It is rarely successful and usually sours the relationship between employee and employer. Our client had been awarded a low bonus, based on the discretion of her manager, with whom she had been having a personality clash. She believed that the bonus had been artificially lowered by her manager for no good reason other than to penalise her. She planned to leave the company anyway but wanted to increase her bonus before she did so.

We advised her on drafting a grievance with supporting evidence. The company investigated the grievance, in particular the difference between the original bonus figure proposed by HR and the lower figure approved by her manager. As there was no good explanation for the difference, the grievance was upheld and she was awarded the full bonus. She was then able to resign after finding another job, with her full bonus and a removal of her post termination of employment restrictions.