BONUS PAYMENTS – LIMITATIONS ON AN EMPLOYER’S POWER. THE

Introduction.

Bonuses have many purposes, ranging from motivating an employee to achieve particular goals (financial or otherwise) to encouraging staff loyalty. Either way, the employee stands to gain for doing something that will benefit his or her employer. It is therefore surprising that a number of cases have come before the Courts in recent years concerning circumstances where an employer could be said to have abused a bonus scheme, seeking to take the benefit from the employee
without making a proper or any bonus payment. Employers sometimes try to hide behind a discretion whether or not to pay a bonus, stating that this discretion justifies non payment even where an employee can fairly be said to have kept their side of the bargain by hitting
targets or remaining loyal. These cases have seen the Courts lay down guidelines, establishing that just because an employer has a discretion over a bonus payment does not mean
that the exercise of that discretion is unfettered.

General Principle.

In 2004 the case of Cantor Fitzgerald International v Horkulak established that any decision to award a bonus must be rational and in good faith. If must not be arbitrary and irrational.

Practical Application.

In practice this means that a court will look at the contract in question and how the contract is operated to decide if an employer has acted rationally and in good faith. This can sometimes lead to surprising results. In Clark v Nomura, a bonus scheme was described as discretionary, not
guaranteed, and dependant on individual performance. The Court, however, decided that it was too rigid for the employer to base its decision on individual performance, as this would prevent the employer from relying on other legitimate factors. This is an employee friendly decision where the court appears to have taken the view that as the employee deserved a payment it was not going to let the employer hide behind its discretion to avoid a payment where it was
irrational in the circumstances to do so. The courts, however, are not always employee friendly.
In Midland Bank v McCann, the Court decided that it was permissible (albeit hardhearted) for an employer to refuse a bonus to an employee about to be made redundant, where the express purpose of the bonus was to attract, motivate and retain employees. It was obvious that paying the bonus to this soon to be redundant employee would not meet any of the bonus scheme’s
purposes.

Amount to Be Paid

Where the amount due is discretionary and not referable to a specific formula, the case of Taylor v Motability Finance Ltd. decided that the test of how much should be paid was not what a reasonable employer would pay, but what the particular employer in question should have paid with reference to contractual terms and, depending on the circumstances, what other similar employees had received.

Equal Treatment

Quiet apart from any rules outlawing discrimination and requiring equal pay, the Courts have decided that employees must be treated even handedly in relation to bonuses. This does not necessarily mean that employees must be treated the same (although if they are not there could be discrimination and equal pay issues), but any different treatment must not be capricious.

Dismissing to Avoid Payment and Co-operation

A recent case (Takacs v Barclays Services Jersey Limited) has suggested that an employer cannot dismiss an employee if the reason for the dismissal is to avoid its obligations to pay a bonus, and that an employer may be under a duty to co-operate with an employee in achievement of sales targets. Although the court in question has not finally decided on the points, it has said that they are good arguments.

What Can An Employee Do?

If an employee is upset with a bonus decision, they should generally follow the employer’s grievance procedure.
If an employee also feels that he/she has been discriminated against, they should also follow the Statutory Questionnaire Procedure.