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13th June 2019

Can employees enforce payment of discretionary bonuses?

13th June 2019

Can employees enforce payment of discretionary bonuses?

Aleksandra Golat

Posted: 13th June 2019

T: 023 8048 2157

E: Email Me

Employees may establish this entitlement in circumstances where the contract has been varied through custom and practice, however must clearly demonstrate that this is the case by reference to relevant indicia.

The decision of Bluestones Medical Recruitment Ltd v Swinnerton (UKEAT/0197/18/BA) highlights that in certain circumstances an employee can be found entitled to a bonus despite his or her employment contract containing a discretionary bonus clause.

The Facts

Mr Swinnerton was an employee who had been internally promoted to General Manager of Bluestones in 2015. He was employed under a contract that included a clause relating to a discretionary bonus which provided that any bonus to be paid was at the complete discretion of the company. 

In February 2017, Mr Swinnerton was suspended pending a disciplinary investigation. He was subsequently dismissed for gross misconduct. Bluestones indicated that payments had been made to Mr Swinnerton as loans to be repaid by him from dividends when he became a shareholder. There was some documentary evidence supporting that these payments had been made as loans. Mr Swinnerton argued these payments were bonus payments to which he was rightfully entitled on the basis of a previous agreement with management.

Employment Tribunal

At first instance, the ET concluded that Mr Swinnerton was entitled to receive the bonus ‘by virtue of custom and practice’ and by reason of previous discussions with management. It found that an agreement had been struck with Mr Conway (former Managing Director of Bluestones) that Mr Swinnerton would be paid 6.5% of the business operating profit.
Bluestones appealed the decision to the Employment Appeals Tribunal.

Employment Appeals Tribunal

On appeal, the EAT provided guidance on the relevant considerations to look at when considering discretionary employee benefits including bonuses. The EAT confirmed the following:

  • The onus was on Mr Swinnerton to demonstrate he had a legal entitlement to a payment said to have been unlawfully deducted (New Century Cleaning Co Ltd v Church [2000] IRLR 27 CA).
  • The claim must be in respect to an identifiable sum (Coors Brewers Ltd v Adcock [2007] IRLR 440 CA).
  • No term should be implied which is inconsistent with an express contractual term unless there is an established intention to vary that contractual term. Specifically, the factors outlined in Park Cakes Ltd v Shumba and Ors [2013] IRLR 800 should be considered.

Factors to Consider (Park Cakes Ltd v Shumba and Ors)

The EAT outlined the potentially relevant factors as follows:

  • The number of occasions, and the period of time over which, the impugned benefits have been paid;
  • Whether the benefits were always the same;
  • The extent to which the benefits have been publicised generally;
  • How the terms are described;
  • What is contained in the express contract;
  • Equivocalness – if the employer’s practice is equally explicable on the basis that it is discretionary as it is by legal obligation – the employee will not discharge the burden of proof.

The EAT ultimately found that the ET had failed to address the factors identified in Park Cakes v Shumba. It therefore remitted the matter back to the ET for the unauthorised deductions claim to be considered afresh.

What can I take from this?

Employers

If employers intend to make bonus payments to employees at their discretion, contractual clauses need to be properly drafted to reflect this. However if what is contained in the contract differs from what happens in practice, it may be that an employee has a stronger claim to enforce the payment of a discretionary bonus.

Employees

If employees wish to challenge the non-payment of discretionary bonuses, the onus is on employees to establish that an express term for discretionary bonuses has been varied.

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Aleksandra Golat

Posted: 13th June 2019

T: 023 8048 2157

E: Email Me