Entitlement to Discretionary Bonus

Entitlement to Discretionary Bonus

The Appeal Tribunal has released judgment on a case looking at when a bonus expressed as being “Discretionary” becomes an entitlement. The judgment comes as no surprise to employment lawyers and follows a theme that has been followed for some years.

As a general rule, if an employee comes to reasonably expect it, or if it is based on the performance of a particular task or level, and the employee has begun the journey to achieving that (even if that journey hasn’t finished), then the bonus is probably not discretionary.

In this case, the employee concerned was a long-serving employee of many years. Throughout his employment, he had a contract which stated that he might get a discretionary bonus. He was then promoted to General Manager and his bonus was agreed to be payable monthly and based on company performance and he would receive shares.

The agreed intention was that the bonus payments would initially be treated as a loan, and then paid back from the employee’s dividends once he became a shareholder.

Before reaching the lofty heights of shareholder however, he was suspended and then dismissed but the case is not about unfair dismissal.

The case before the tribunal was whether the fact that his bonus was stopped during the period of suspension was an unlawful deduction from wages (which it would be if there was an entitlement to the bonus).

The Appeal Tribunal found that the original tribunal has decided the matter wrongly.  They restated the long-held principle that a bonus described as discretionary may well be an entitlement and not discretionary at all, but in this case, the tribunal had failed to show reasons clearly enough as to how the entitlement had become an entitlement, and not subject to the employer discretion.

The lesson from this case is that employers should not routinely assume that bonuses are discretionary just because they say they are. This normally doesn’t automatically follow.

The case is Bluestones Medical Recruitment v Swinnerton and can be reached at the following link:

https://assets.publishing.service.gov.uk/media/5ca756a7ed915d0addeb9927/Bluestones_Medical_Recruitment_Ltd_v_Mr_M_Swinnerton_UKEAT_0197_18_BA.pdf