It’s bonus time- but you may not be happy with the figures, or may even find yourself out of a job before the bonus is paid. What are your rights?

Employment lawyer, Philip Landau from Landau Zeffertt Weir looks at the position:

It’s that time of year. Your bonus is shortly expected to be paid, and although your bonus expectations may be more realistic than in previous years, you may be wondering what your rights are if you are not happy with the bonus figures or worse, you are let go by your employer before the bonus payment date.  After all, it wouldn’t be the first time that banks and other financial institutions fast tracked their staff out of the door to avoid paying bonuses. You will often receive scant notice in a redundancy situation and although there will need to be a consultation period, you would not usually be expected to work during the process.

But what are your rights to challenge the bonus payment-or lack of one? It would firstly be worthwhile exploring the different types of bonus scenarios.

The ability of an employer to withhold payment of bonuses will depend on whether you have a contractual right to receive the bonus in the first place. If you do, you may have a clear claim for breach of contract. Unfortunately, most bonuses are not contractual or guaranteed, but are expressed to be “discretionary.” Such schemes usually still include some kind of bonus criteria (such as the achievement of individual or departmental targets) for determining the amount of the bonus, but will always reserve to the employer the right to decide whether those payments are actually made.

The courts have in recent years, however, determined that mere fact that bonus payments are said to be “discretionary” in an employee’s contract is not necessarily the whole picture, and that there is no such thing as an unfettered discretion. Various decisions in recent years have determined that an employer must exercise its discretion in good faith and on reasonable grounds. It follows therefore that if an employee meets his bonus criteria, then an employer must have reasonable grounds for not paying the bonus if it is to show that it has exercised its discretion in good faith. An employer may find it difficult to establish such a reason if it is not specified in the bonus arrangements.

So, there are some grounds at least for challenging a bonus payment (or non –payment at all) if your bonus arrangements are expressed to be discretionary.

You may also find that a challenge can be made if your employer has by “custom and practice” paid bonuses to other employees who have performed similar to you over the year, but your employer has decided to use your non-payment of a bonus as a tool to “freeze you out” with no good reason. A justification by your employer that you are out of favour as compared with your colleagues is unlikely to wash. In fact, such a scenario would potentially also give rise to your right to claim constructive dismissal – that being there was a breach by your employer of the implied term of trust and confidence in your contract of employment.

Often, the question arises whether payment of a discretionary bonus should still be made on termination of employment – whether you have resigned, or been dismissed. If you have been dismissed for gross misconduct, there will almost certainly be no requirement to pay outstanding bonuses. In cases of gross misconduct, you would be in breach of the terms of your employment and dismissed summarily. Accordingly, any bonuses, which have been earned, but not paid, will be forfeited.

However, if you resign with notice in accordance with your contract of employment or you are made redundant, the position will not be so clear. In such circumstances, the employer will have three options: to allow you to work your notice period; to place you on garden leave or; to elect to pay you in lieu of your contractual entitlement to notice (assuming this right is reserved in the contract).

If the employer elects to pay you in lieu of notice, you will not be employed at the bonus payment date and will therefore not be entitled to receive a bonus. If there is no contractual right to pay in lieu however, the payment in lieu would amount to a breach of contract. In such circumstances, you could issue proceedings and would be entitled to recover the sums you would have been paid during your notice period – including the bonus (if there is one).

Where you are working your notice or are on garden leave at the bonus payment date and your employer has sought to withhold the bonus, recent case law has come down on the side of the employee and the employer has been compelled to honour the bonus payment.

The change in culture of how employers should now be considering the payment of discretionary bonuses means employers should no longer decide such matters behind closed doors, and without any rationale to the decision being made. As always, it is best to obtain professional advice before embarking on any legal claim.


Jobsite have partnered with specialist employment law solicitor Philip Landau, to bring you expert advice on your rights in all key areas of your working life. As a Jobsite user you are also entitled to receive a free initial consultation on all employment law issues from Philip. Philip can help with a number of legal problems; perhaps you feel your employer isn’t following their legal responsibilities, you believe you have been dismissed unfairly or you are unsure about clauses in your contract. Once he knows your specific situation he can let you know what your rights are and what action you can take. To get in touch with Philip, click the link below and he will contact you to discuss your situation in more detail. Philip Landau is a solicitor and partner, specialising in employment law, in the London legal firm Landau Zeffertt Weir.

Click here to here to contact Philip

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