Bonus points.
| Author | Nickson, Sue |
| Position | Brief Article |
Many employers believe they can award or withhold staff bonus payments at their discretion but, warns Sue Nickson, they must be able to defend their decisions and prove that they were rational
If a bonus payment is discretionary, what rights does an employee have to it? Does it depend on why the employer chooses to reduce or withhold it, or whether the individual has left the company?
"Discretionary" certainly implies that the employer can give or withhold the bonus on a whim, but this principle is under attack in the courts. In the Employment Tribunal, unfair dismissal compensation is already assessed by referring to the employee's losses, including that of any benefit which he might reasonably be expected to have had, but for the dismissal. Clearly a discretionary bonus could fall into that category, especially if there were a history of previous payments or evidence of similar figures paid to the ex-employee's colleagues.
However, unfair dismissal compensation is generally limited to 50,000 [pounds sterling] and some employees can expect much larger bonus figures. The focus has therefore turned to the pursuit of discretionary bonuses in the High Court.
Although much attention has been paid to the recent high-profile decision of Clark v Nomura International (a dismissed trader was awarded 1.35 million [pounds sterling] as a discretionary bonus), the issue is not in a new one. In 1997 the Court of Appeal awarded Mr Clarke compensation against BET for loss of discretionary bonuses three years into the future, after he was dismissed in breach of his 36-month notice entitlement. BET argued that, had it given Mr Clarke proper notice, it would have exercised its discretion and would not have paid him any discretionary bonus. But the court held that Mr Clarke's good performance record meant the employer's exercise of its discretion in that way would be a breach of the implied obligation of trust and confidence -- so either way, the contract would be breached.
The same principles applied in Nomura. Mr Clark's letter of appointment stated that his bonus was discretionary, but dependent on his individual profitability. In his first year he made substantial profits for Nomura and received a bonus of over 2.5 million [pounds sterling]. He was dismissed in his second year on numerous grounds including shortcomings in his corporate contribution and team-working, inappropriate dress and using a mobile phone at his desk. Nomura chose not to pay him any...
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