Key takeaways
Employers cannot retrospectively alter bonus conditions
Once criteria met, new requirements cannot reduce agreed bonus entitlement.
Discretionary bonuses still create enforceable obligations
If employer sets terms and employee satisfies them, payment becomes due.
Clear written policies prevent bonus disputes
Explicit conditions should be documented upfront to avoid legal claims.
Where an employer fails to pay an employee’s bonus entitlement, the employee can bring an unlawful deduction from wages claim to recoup the underpayment. The EAT recently upheld such a claim and held that, where an employee has met the terms for entitlement to a discretionary bonus, the employer cannot retrospectively ’move the goalposts’ to reduce the amount of bonus payable.
C, who worked in sales for a technology company, was eligible for financial incentives under a variable pay plan (VPP). In March 2020, a VPP presentation announced the introduction of a new bonus that was payable on up to 1% of the revenues for the first 12 months from new logo invoicing, subject to sector lead approval. At the time, C was pursuing a new contract with John Lewis Partnership (JLP) and his line manager said that if he secured the JLP contract he would receive this bonus and become one of the highest paid staff. In June 2020, after the contract with JLP was signed, his line manager put C forward for entitlement to the discretionary bonus. In due course, the sector lead approved C’s line manager’s proposal that C should receive the full 1% from the first year’s revenue from the JLP contract. However, the sector lead later sought to add two new requirements for payment of the bonus to C. Firstly, that he would need approval from higher up the management chain to pay the bonus. Secondly, that there would be a cap of $150,000 on the bonus payable to C. This was the first either C, or his line manager, had heard of these bonus conditions.
After the employer subsequently limited the bonus paid to C to $150,000, he brought an unlawful deduction from wages claim for the unpaid balance. The employment tribunal dismissed C’s unlawful deduction from wages claim, accepting the employer’s argument that C’s bonus entitlement had ‘crystalised’ when it had declared the lower bonus based on the application of the $150,000 bonus cap. As C had been paid that lower bonus, his unlawful deduction from wages claim was dismissed.
C successfully appealed to the EAT, which substituted a decision that C was entitled to 1% of the JLP year one revenue, less the $150,000 he has already been paid. The EAT held that, on a correct analysis of the factual and legal position, the employer had put forward terms under which a discretionary bonus would be awarded, and C had satisfied the terms for entitlement to the bonus in securing the JLP contract. It was not open to the employer to then retrospectively ’move the goalposts’ by attaching further conditions to the bonus entitlement.
The case is a clear reminder that any conditions for entitlement or payment of a bonus should be clearly set out in a written bonus policy. Once the conditions for any bonus are met, it is not possible for the employer to change its mind and introduce new conditions retrospectively.
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