The public outcry
against the city bonus culture continues
following the most recent news that city
bankers of the Dresdner Kleinwort bank are
suing the bank for unpaid bonuses worth
£30m.
Whilst it is easy to join the
overwhelming criticism against such bonuses
and further support the government’s
attempts to try and prevent such payments
being paid (especially as the taxpayer is
now a major shareholder in a number of the
employers paying them) the banks are in a
difficult legal position!
Failure to pay a bonus entitlement
expressly set out in a contract of
employment entitles the employee to claim
damages for breach of contract. Bonus
entitlements are, however, often worded to
be “discretionary”. In theory, you might
believe that the employer would be able to
pay or withdraw such bonuses as and when
they see fit. However these matters are
rarely that straightforward.
A case concerning an employee of Boots
the Chemist held that labelling a bonus
scheme as “discretionary” does not in itself
mean that it has no contractual effect.
Rather, a careful analysis of the bonus
scheme is necessary and account should be
taken of its previous history and detailed
consideration of its wording. For instance,
bonuses can be awarded for loyalty,
performance (relying on strict criteria laid
down by the employer) or on the company’s
performance being profit-related, etc.
Furthermore. it was held that even though
the bonus is described as “discretionary”,
the employer does not have carte blanche to
pay a nil bonus and any decision not to pay
a bonus or to pay a reduced bonus must be
done rationally by the employer and in good
faith.
Essentially, therefore, in order to avoid
any claim, the employer must set out reasons
to the employee that have clearly been
considered and that are rational as to why
they are not being paid a bonus or one that
it is below the level they were expecting.
Failure to do so may result in a claim for
damages as well as a constructive unfair
dismissal claim.
Bonus schemes therefore need to be
carefully drafted. They should:
- detail whether the scheme is
contractual or discretionary;
- set out how any such discretion is
to be applied;
- set out clear,
identifiable/quantifiable targets or
objectives
- set out how the bonus will be
calculated if objectives are achieved;
- provide for feedback at the end of
the financial year;
- be reviewed each year to determine
their continuation/new objectives; and
- be applied equally to both male and
female employees to avoid claims for
equal pay and sex discrimination.
For assistance in drafting or
reviewing your bonus schemes or to discuss
any other employment matter, contact
Taylors’ Employment Team:
Oliver McCann (Employment Partner) –
01254 297930,
oliver.mccann@taylors.co.uk
James Bellamy (Employment Solicitor) –
01254 297914,
james.bellamy@taylors.co.uk
Copyright 2006 - 2010
Taylors Solicitors
»
Print
» |