
Insight
If your bonus was not what you were expecting or you’ve found out that some of your colleagues received more than you did, is there anything you can do about it if the bonus scheme is discretionary?
Recent case law suggests that employees may be in a stronger legal position to challenge discretionary bonus awards.
In almost every instance an award scheme is referred to as “discretionary” or there is reference in the award scheme to the amount of the bonus being “entirely discretionary”. Employers like this label because it makes them feel safe in the belief that they will not be accountable for any awards withdrawal or its application. Recent case law however challenges this assumption because the Courts now appear more than willing to scrutinise and intervene in cases relating to discretionary benefits.
The Courts are prepared to give particular consideration to issues of “rationality”, “legitimate expectations” and “relevant considerations” when deciding the legal limits of an employer’s discretion and whether the employer has acted within those limits.
Many people have an employment package that is made up of a basic salary plus a bonus (in some cases often a substantial bonus). The bonus element is frequently linked to the employee having to meet certain performance criteria which are often not recorded or appear to be constantly moving.
The basic principle is that an employer should not exercise its discretion perversely. To act perversely goes to the heart of the employment relationship, destroying the implied term of trust and confidence that should exist between an employer and employee, and gives rise to a constructive dismissal / breach of contract claim.
In order to show perversity, an employee must be able to establish that the award decision was irrational in some respect. If an employer is unable to present a credible explanation, this will support the contention that it has acted irrationally.
The Courts also seem, when looking at discretionary benefits (including bonuses), to be particularly interested in the concepts of: